5 Product Mix Pricing Strategies

What is a Product Mix Pricing Strategy?

A strategy that helps in setting the price of products in a way that each of the products plays a specific role within the product mix, is called a Product Mix Pricing Strategy. Here, the product mix is the collection of every product line that a brand owns along with all the products included in those product lines. A product line is the selection of a brand’s or manufacturer’s similar products that fit into a systematic category. Many brands, such as Starbucks have many product lines, including coffee, drinkware, and ice cream. 

Product Mix Pricing Strategies

When a product is part of a product mix, there often arises the need to change the strategy for setting its price. In such cases, the firm tries to set a price that can maximise the profits on the total product mix. The major product mix pricing strategies that can prove to be helpful to the firms are as follows:

1. Product Line Pricing:

It is a strategy where a company sets different prices for different products within the same product line. It’s like having a menu with various dishes, and each dish has its own price. Imagine you’re at a restaurant, and they offer different types of burgers. Each burger has its own price, even though they all belong to the same burger category. Some burgers might have premium ingredients and extra toppings, so they are priced higher. On the other hand, there might be basic burgers with fewer toppings or simpler ingredients, and they are priced lower. The purpose of product line pricing is to cater to different customer preferences and budgets. It allows customers to choose a product that aligns with their needs and willingness to pay. Some customers might be willing to spend more for a burger with fancy ingredients, while others might prefer a more affordable option. Product line pricing also helps companies maximise their overall revenue. By offering a range of prices within a product line, they can capture different segments of the market and attract a broader customer base. It gives customers options and increases the chances of making a sale.

2. Optional-Product Pricing:

It is a product mix pricing strategy in which the firm offers to sell optional or accessory products along with the main product. For example, a mobile buyer may choose to buy Bluetooth earphones and a back cover for the mobile, or a PC comes with different options such as docking systems, software options, carrying cases, etc. Setting a price for these options is a sticky problem. The companies should carefully decide which item/feature they need to include in the product as default and which item to offer as optional. For instance, the mobile producer can decide whether to include a charging adapter in the base price or offer it as an optional item. 

3. Captive-Product Pricing:

It is a pricing strategy that involves setting a price for the products that must be used along with the main product. For example, a razor is the main product, and the razor blade is a captive product, a printer is the main product, and its cartridge is the captive product. The main product is often sold at a low price or even at a loss, with the intention of making a profit from the sale of complementary or related products or services by keeping their price high. It’s a clever strategy to get customers hooked on a product or service and then make money from additional purchases. 

Suppose a printer company is selling printers at a very affordable price. But, the printer requires a specific type of ink cartridge that can only be purchased from the same company, and these cartridges are quite expensive. In this case, the printer is the main product being sold at a low price or sometimes at a loss to attract customers. The company knows that once customers have the printer, they will need to buy the ink cartridges regularly, which is where the profit is made. They have a captive market because customers are “captured” by the printer and compelled to buy the associated products or services. The purpose of captive-product pricing is to create customer loyalty and generate ongoing revenue through the sale of complementary or related items. The initial low price of the main product entices customers, but the company recoups its profits by selling the supporting products or services that are necessary for the main product to function properly. This strategy is commonly used in various industries, such as printers and ink, gaming consoles and video games, razors and razor blades, and even in the case of some software and services. By offering a compelling deal on the main product and then making money from the additional products or services, companies can establish a long-term relationship with customers and secure a steady stream of revenue.

4. By-Product Pricing:

It refers to the process of determining the price of a secondary or incidental product that is generated during the production of a main product. It’s like getting a bonus product along with the one the company actually wanted. Imagine you’re running a bakery, and your main product is delicious bread. However, during the bread-making process, you also end up with some leftover dough that can be used to make smaller rolls or buns. These rolls are considered by-products. By-product pricing involves deciding how to price these additional rolls. When setting the price for the by-product, there are a few options you can consider. One approach is to assign a price based on the cost of production. This means taking into account the ingredients, labour, and other expenses involved in making the rolls. Alternatively, you can price the by-product based on its market value. This involves looking at the price that similar rolls are being sold for in the market and using that as a benchmark. 

By-product pricing is important because it helps a company make the most out of its production process. It allows the company to monetize resources that would otherwise be discarded or underutilized. However, it should be kept in mind that by-product pricing can vary depending on factors like market demand, production volume, and the overall profitability of the main product. Additionally, by-product pricing can also be influenced by ethical considerations and sustainability goals. For example, if your bakery aims to reduce food waste, you might choose to price the by-product more affordably to encourage customers to purchase it and prevent it from going to waste.

5. Product Bundle Pricing:

It is a strategy where companies offer a group or bundle of products or services together at a discounted price compared to the price charged if they are purchased individually. It’s like getting a package deal where you can buy multiple items or services as a bundle instead of buying each item separately. Imagine you’re at a fast-food restaurant, and they offer a combo meal that includes a burger, fries, and a drink at a lower price than buying each item separately. A company combines different products into a bundle and offers them at a more attractive price to encourage customers to buy more and increase sales. The idea behind product bundle pricing is to provide customers with added value and convenience. By bundling products together, customers can save money compared to buying each item individually. 

Product bundle pricing is commonly used in various industries, such as technology, telecommunications, entertainment, and travel. For example, a technology company might offer a bundle that includes a laptop, a printer, and software at a discounted price. Or a telecommunications company might offer a package that combines internet, TV, and phone services for a lower overall cost. This pricing strategy benefits both the customers and the company. Customers get a better deal and a simplified purchasing process, while the company can increase sales volume and encourage customers to try different products or services within the bundle.