By Product Pricing - Definition, Importance & Example
What is By Product Pricing?
By Product Pricing is a pricing strategy in which the by products of a process are also sold separately at a specific price so as to earn additional revenue from the same infrastructure and setup. By product is something which is produced as a result of producing something else (the main product). Usually, the byproducts are disposed off and have little value.
But in by product pricing, the by product has significant value and the manufacturer can gain competitive advantage by reducing the price of the main product or recovering some of his expenses by selling the valuable by product.
Importance of By Product Pricing
By product pricing presents an opportunity to set the right price for the by products of the main core product so as to earn incremental revenue. It is very important to set the right price for the by product so that it can be sold. Like any other pricing, the costs need to be properly ascertained to make sure that the by-products are still sold at profit and are able to recover costs.
Many times if done properly by maintaining quality, the by products can become part of the portfolio and can be a strategic part of the portfolio. The pricing if done without thought can lead to unnecessary losses.
Example of By Product Pricing
When meat is processed for human consumption, the by product can be used as food for dog/cat. So the manufacturer can sell it in market to recover some of his expenses say transportation and storage costs.
Hence, this concludes the definition of By Product Pricing along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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