5 Product Mix Pricing Types and Examples
Setting prices takes research and planning. Successful firms rely on comprehensive data and expert consultation services to determine which of the five primary methods to use when pricing their portfolio.
1. By-Product Pricing
By-product pricing takes profitable by-products generated during the manufacturing process and turns them into marketable products. Breweries harness this model to turn potential waste materials into nutrient-dense ingredients used in manufacturing animal feed.
2. Line Pricing
Line pricing separates goods and services into categories or lines, helping to establish product quality levels. Firms often use line pricing when offering base and enhanced versions of a product. Hotel rooms are a prime example. All have the same basic features, but some offer additional benefits at a higher price point.
3. Optional Pricing
With optional product pricing, firms list a base product at a relatively low price, typically with lower profit margins, then offer accessories or add-ons with higher profit margins. An excellent example of optional pricing in action is smartphones, which buyers purchase with a case, screen protector and other accessories.
4. Bundle Pricing
In bundle pricing, vendors offer multiple products for an all-inclusive price lower than the goods' individual costs. Telecommunications providers use bundle pricing when they offer packaged phone, internet and television services.
5. Captive Pricing
Captive pricing is when you have a base product that requires separate accessories to work. Like with optional pricing, this method typically involves a lower-profit base product and higher-profit accessories. One of the most common examples is shaving razors that require cartridge blades.
The Most Common Approaches To Mix Management Pricing
Pricing has a significant impact on how well products and services will perform on the market. When you find a strategy that creates demand for your product and services, covers your production costs and generates a profit, you'll gain flexibility, develop earning opportunities, communicate value and increase sales.
Common strategies include:
- Geographical: Price your products based on where you sell them. This method can help you adjust for logistical costs and regional differences.
- Competitive: Set your prices in relation to what competitors are charging for comparable products. This technique involves positioning your goods as higher-quality items.
- Value-based: Base your prices on customer perception. This approach is subjective and may require additional marketing to build enthusiasm.
- Skimming: Use high prices during product launches to capture more revenue. This method relies on people eagerly awaiting a product's release who may pay more.
- Penetration: Start low to inject your goods into the market. This strategy trades an initial profit loss to claim more market share and recoups it later.
Execute Mix Pricing Strategies for Your Business
Determining and executing the best mix pricing strategies is more complex than it may seem. There's an incredible amount of research involved and sophisticated planning necessary to balance details like manufacturing costs, profit margins, competitor threats and consumer spending habits.
At Revenue Management Labs, we customize every solution we create to meet our client's unique needs. Our consultants are your partners in developing successful revenue streams and creating sustainable, long-term company growth.
Use our contact form to send us an inquiry. We'll show you all the ways our firm can help your business achieve more.