Product line pricing
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Product line pricing is a tool for setting product prices, consisting in dividing goods and services into different cost categories in order to create various quality levels for many products, but within the same production line. In order to effectively establish prices for individual product lines, the company must introduce significant price differences between the established categories in order to inform potential buyers of quality differences.
The product line price list provides marketers flexibility in setting prices. The marketer's task is to maximize profits for the entire product line, not to focus on the profitability of a single product. Before determining the price of a product for a given product line, the relationships between products in this line should be assessed (W. M. Pride, O. C. Ferrell 2008, s. 591). "When products in a line are complementary, sales increases in one item raise demand for other items" (W. M. Pride, O. C. Ferrell 2008, s. 591).
Types of strategies
Applying a pricing policy for a product line requires marketers to choose a specific strategy that they will implement. Those can be (W. Pride, R. Hughes, J. Kapoor 2009. s 389-390):
- Captive Pricing - in the case of using internal prices, the price of the basic product in the line is low, while the price of products necessary to operate or improve the base product is high. The main goal of this strategy is to attract as many customers as possible to a low-price product, and in the next stage to get a profit from the products that are necessary to use the basic product.
- Premium Pricing - applies when the highest quality product or the most universal version of similar products from the same product line has the highest price. Other products in this line are valued in a way that attracts the attention of price-sensitiveve customers or buyers looking for product characteristics. Marketers who use the premium strategy obtain a significant part of their profits from products at a premium price.
- Bait Pricing - this strategy is to attract customers by placing a low price on one item in the product line with the intention of selling a more expensive product. Potential customers are convinced that they will pay less for something that actually costs more. The seller advertises prices that are much lower than those usually available on the market, and then finally reveals that the first product shown is no longer available for sale. a more expensive substitute may be offered in its place.
- Price Lining - is the process in which marketers set different price ranges for different product groups. Customers have a wide choice of products and can choose the one that best suits their expectations. This strategy aims to convince consumers to buy the best quality products because the top product offers much more than just an economic product.
Examples of Product line pricing
- Luxury Goods: Luxury goods are products that are marketed as having a high-quality and luxurious appearance, often at a higher price point than similar items. For example, a luxury car manufacturer may offer a product line of vehicles that differ in features and performance, but all have a similar level of quality and luxury.
- Mobile Phone Plans: Mobile phone providers often offer different levels of plans that are designed to fit different needs. For example, a provider may offer a basic plan with limited data and minutes for a lower price, and a premium plan with more data and minutes for a higher price.
- Apparel: Apparel retailers often offer different lines of clothing at different price points. For example, a clothing store may offer a basic line of clothing at a lower price point, and a premium line of clothing at a higher price point.
Advantages of Product line pricing
Product line pricing is an effective tool for setting prices, as it allows businesses to vary the quality and cost of their products within a product line. The main advantages of product line pricing are:
- It creates a differentiated range of products, allowing customers to choose from various price points. This can increase sales, as customers may be more willing to purchase products at different price points rather than just one.
- It allows firms to maximize their profitability by pricing products at the price point that will generate the highest profits.
- It can be used to target different customer segments, as firms can create different levels of product quality to suit different customer needs.
- It can also help firms to manage inventory levels, as products can be priced to move more quickly at certain times of the year.
- Product line pricing can also help to prevent price wars, as firms can create different price points that customers can choose from. This can reduce the risk of firms having to compete on price.
Limitations of Product line pricing
Product line pricing is a tool for setting product prices, consisting in dividing goods and services into different cost categories in order to create various quality levels for many products, but within the same production line. However, there are several limitations to this pricing strategy:
- Inability to price differentiate: Product line pricing tends to limit the ability to price differentiate, as it requires pricing all products within a line at a similar price level.
- Difficulty in creating strong brands: Product line pricing can make it difficult to create strong brands and differentiate the company’s products from competitors.
- Risk of over-reliance on cost-based pricing: Product line pricing can lead to companies relying too heavily on cost-based pricing, which can lead to lower profits in the long run.
- Limited ability to respond to changing markets: Product line pricing does not allow companies to easily respond to changing markets and customer needs.
- Risk of cannibalization of higher-priced products: Product line pricing can lead to cannibalization of higher-priced products, as customers may opt for the lower-priced product in the same line.
One-sentence introduction: Other approaches related to product line pricing are as follows:
- Penetration Pricing: This approach involves setting prices low in order to gain market share and then raising them over time as the market matures.
- Premium Pricing: This approach is used to create a perception of higher quality and value for products with a higher price tag.
- Price Skimming: This approach involves setting prices high and then reducing them over time, as competitors enter the market.
- Bundle Pricing: This approach involves packaging several related products together in order to increase sales and reduce the production cost.
Summary: Product line pricing is a tool for setting product prices, consisting in dividing goods and services into different cost categories in order to create various quality levels for many products, but within the same production line. Other approaches related to product line pricing include penetration pricing, premium pricing, price skimming, and bundle pricing.
References
- Lamb C. W. (2012) Marketing Cengage Learning, Mason
- Macdivitt H. (2013) Cambridge Marketing Handbook: Pricing Points Kogan Page Publishers, London,
- Pride W. M., Ferrell O. C. (2008) Marketing Cengage Learning, Mason,
- Pride W., Hughes R., Kapoor J. (2006) Business Looseleaf Version Cengage Learning, Mason,
- Pride W., Hughes R., Kapoor J. (2009) Business Cengage Learning, Mason,
- Rao V. R. (2009) Handbook of Pricing Research in Marketing Edward Elgar Publishing, Cheltenham.
Author: Anita Byś
