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Definition: Product Line Pricing
Product Line Pricing is generally used by companies and retailers in order to separate goods and services into cost categories in order to create various perceived quality levels in the minds of consumers. An effective product line pricing involves having adequate price gaps between categories and items to inform possible buyers of difference in quality that exists. The practice is to review and set prices of multiple items in coordination with one another.
It aims to maximize sales of different products by creating complementary goods rather than competing goods. Generally, each product or service has an influence on the other product or service sold by the company.
There are various strategies and objectives which a product line pricing will help you achieve:
Perceived Value: Some customers are looking for the best of class products and will be willing to pay extra for the good or service, while some would seek basic product based on its functionality and price, while a third group might look to balance between both the ends. A product line which caters a low end, mid- range and a high end priced goods and services can lead to the consumers believing that each product has a different value. The high end priced product will need to have more extensive features in order to demand the associated price and to be able to sell all the items in the same place and under the same name. A company can also follow the practice wherein it sells different products or services priced differently under different names.
Captive Pricing: In order to attract new customers a company might offer a base version of the product at a low price and will later try to upsell its goods and services. Eg. Hair saloons charge a comparatively smaller amount to cut hair in order to attract customers but once they are in they will try to sell goods complementary to it which are charged higher or complementary to the main service.
Loss Leaders: Some companies sell certain basic products at or below cost in order to lure the customers in and then drive sales. Eg. Online retailers flipkart, snapdeal and amazon are trying to lure customers by giving heavy discounts on certain items and then trying to make them purchase other goods.
Domino Effect: Prices of similar items are linked heavily and a slight change in price of one of the goods might affect the other good or service. So product line pricing gives you leeway to change the price of a particular line to overcome the increased cost of the good or service.