Product Mix Pricing Strategies

The strategy for setting a product's price frequently has to be changed while the product is part of a product mix. In this particular case, the firm looks for a set of prices that maximizes the profits on the entire product mix. Pricing is hard because the many products have related demand and costs and face different degrees of competition. Now we take a closer look at the five product mix pricing situations

a)  Product Line Pricing

Companies normally develop product lines rather than single products. In product line pricing, management has to decide on the price steps to set among the various products in a line.

The  price  steps  should  take  into  account  costs  differences  among  the  products  in  the  line, customer evaluations of their several type of  features, and competitors' prices. In many industries, sellers utilize well-established price points for the products in their line. The seller's job is to establish perceived quality differences that support the price differences.

b)  Optional-Product Pricing

Various companies use optional-product pricing-offering to sell accessory or optional products along their main product. For example, a car buyer can choose to order cruise control, power windows, and a CD changer. Pricing these options is a tacky problem. Automobile companies have to decide which items to include in the base cost and which to offer as options. Until current years, the economy model was stripped of so much comforts and conveniences that most of the buyers rejected it.

c)  Captive-Product Pricing

Companies that make products that has be used along a main product are by using captive- product pricing. Examples of captive products are camera film, razor blades, video games, and computer software. Producers of the major products ( cameras, razors ,video game consoles, and computers)  frequently  price  them  low  and  set  high  mark-ups  on  the  supplies. So, camera manufactures expenses its cameras low because they make money on the film it sells. In the particular case of services, this schema is called two-part pricing. The price of the service is broken down into a fixed fee plus a variable uses rate. Therefore, a telephone company charges a monthly rate-the fixed fee-plus charges for calls beyond few minimum number-the variable usage rate. Amusement parks charge admission plus fees for midway attractions, food, and rides over a minimum. The service firm has to decide how much to charge for the basic service and how much for the variable usage. The fixed amount should be low sufficient to induce usage of the service; profit may be made on the variable fees.

d)  By-Product Pricing

In producing processed meats, chemicals, petroleum products and other products, there are frequently by-products. If the by-products have no value and if getting rid of them is expensive, this will affect the pricing of the basic product. By using by-product pricing, the manufacturer will seek a market for these by-products and should accept any price that covers more than the cost of storing and delivering them. This practice permits the seller to reduce the basic product's price to make it more competitive. By-products may even turn out to be profitable. For instance, many lumber mills have started to sell bark chips and sawdust gainfully as decorative mulch for commercial landscaping and home.

Sometimes, companies don't realize how much valuable their by-products are.

 e) Product Bundle Pricing

By using product bundle pricing, sellers frequently combine several of their products and offer the bundle at a reduced price. Therefore, sports and theatres teams sell season tickets at less than the expense of single tickets; hotels sell particularly priced packages that include room, meals, and entertainment; computer makers include striking software packages with their personal computers. Price bundling may promote the sales of products consumers may not or else buy, but the combined price has to be low sufficient to get them to buy the bundle.