The strategy for setting a product’s price often has to be changed when the product is part of a product mix.
strategy for setting a product’s price often has to be changed when the product
is part of a product mix. In this case, the firm looks for a set of prices that
maximizes the profits on the total product mix. This pricing is difficult because
the various products have related demand and costs and face different degrees
of competition. The following section outlines the five product-mix pricing
situations depicted in Figure 3.4.1
Since most firms market multiple
product lines, an effective pricing strategy must consider the relationships
among all of these products instead of viewing each is isolation. In product
line pricing, management must decide on the price steps to set between the
various products. The price steps should take into account cost differences
between the products, customer evaluations of their different features and
In many industries, marketers use
well-established price points for the products in their line. The customer will
probably associate low, average and high quality with the price points. The
marketers task is to establish perceived quality differences that support the
Many firms use this strategy by
offering to sell optional or accessory products along with their main product.
These firms have to decide which items to include in the base price and which
to offer as options. Often the basic model which is stripped of many comforts
and conveniences sought by the customers gets rejected.
Firms that make products that
must be used along with a main product are using this pricing strategy.
Producers of the main products often price them low and set high markups of the
supplies. For a competitor who does not sell these supplies, he will have to
price his product higher in order to make the same overall profit.
In case of services, this
strategy is called two-part pricing where the price of the service is broken
into a fixed fee plus a variable usage rate. The service firm must decide how
much to charge for the basic service and how much for the variable usage. The
fixed amount should be low enough to induce usage of the service and profit can
be made on the variable usage fees.
In producing certain products,
there are by-products. If these by products have no value and if getting rid of
them is costly, this will affect the pricing of the main product. 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 allows the marketer to reduce the main product’s
price to make it more competitive.
Using this strategy, marketers
combine several of their products and offer the bundle at a reduced price.
Price bundling can promote the sales of products consumers might not buy
otherwise, but the combined price must be low enough to get them to buy the
Tags : MARKETING MANAGEMENT - Pricing Methods
Last 30 days 1949 views