Product Mix Pricing, In this companies, searches for a set of prices that can maximize profits on the total product mix. Companies should modify their price setting strategies when the product is part of product mix. Products have cost and demand interconnections and also they are subjected to various degrees of competition, so pricing is very difficult. We have six types of product mix pricing which are: Product line pricing, two-part pricing, by-product pricing, product bundling-pricing, captive-product pricing and optional feature pricing.
- Product Mix Pricing- Line Pricing: Firms usually develop product lines and not just single products. They introduce pricing in steps. For example, A women’s clothing retail shop may carry women’s shirts at 3 different price steps: Rs 500, Rs 1000 and Rs 1500 and above. Consumers will perceive these three prices as low, average and high quality. The retailer’s job is to establish perceived quality differences in customers’ minds that should justify the price differences to them
- Product Mix Pricing- Optional Feature Pricing: Most of the firms sell optional products, services, and features in addition to the main product. The best example is of automobile companies which advertise their entry level models of cars just to pull users into their showrooms. The base model is the cheapest one which has most of the features stripped off. Buyers come into the showroom keeping in mind the price of the base model and leave the showroom after spending a lot of extra money on the features. The features may include power steering, power windows, central locking, auto lock and many others. Pricing is a concern for marketers as they have to decide which features to include in standard price and which features to offer separately. For example, hotels follow a strategy according to which they offer food at low price and beverages at a high price.
- Product Mix Pricing- Captive Product Pricing: Some of the products require ancillary products. For example, razor blades are ancillary to razors and in the same way cameras, films are ancillary to cameras. So what retailers do is that they offer razors and cameras at a low price and charge a huge sum for razor blades and camera films. There is a disadvantage to this if captive products are priced high than their substitutes or counterfeiting can decrease its sales to a high level. For example, customers nowadays buy cartridge refills of printers from retailers who offer them a huge discount of 20% to 30 % off manufacturers’ price. The story of Hewlett-Packard (HP): In 1996, HP decided to cut their printer prices by 60% in some of the cases. HP was able to do so as customers were spending a huge sum on ink cartridges, toner, special printing papers and moreover inkjets were giving them a high-profit percentage of 45-60%. As HP decreased the price of printers it’s sales went high and so did the sale of captive products.
- Product Mix Pricing- Two Part Pricing: Service companies usually use this strategy of two-part pricing which consists of a fixed fees and additional variable usage fees. For example, mobile phone consumers have to pay a minimum monthly price as per their plans and additionally they pay for extra calls when they allotted calls get finished. In the same way, fun parks charge minimum entry fees plus an additional fee for rides. There is the same problem of how much to charge for basic service and how much for the variable usage for service firms. The Fixed basic fee should be low to encourage customers to purchase and profits can be earned from the variable usage fees.
- Product Mix Pricing- By-Product Pricing: Some of the products like- petroleum products, meats, and chemicals results in by-products that must be priced on their value. Companies now charge a low price on their main products and they earn well by charging a huge sum for by-products.
- Product Mix Pricing -Bundling Pricing: Retailers usually bundle features and products in this product mix pricing method. When sellers sell their products only in a bundle it is called pure bundling. For example, a talent firm may insist that a hot actress can be signed to a film only when other talents (directors, writers) are also welcomed by the film agency. This is called tied-in-sales. When a seller sells goods both in a bundle and single product it is called mixed bundling and it comes under product mix pricing- bundle pricing. Sellers charge a low price for a bundle as compared to selling a single product. For example, an auto manufacturer may offer a package at a low price as compared to all options separately. A theater may cost a season’s subscription at a lower price as compared to buying all options separately. Customers may not plan to buy a bundle but savings on the bundle may attract them to buy. Some users want less than a bundle in exchange for a low price. These type of customers ask seller either to unbundle or re-bundle its offer.
The above all explained points are product mix pricing strategies used by the retailers.