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May 31, 2022

As a small business owner, it’s important to price your product lines correctly. A good product line pricing strategy will help you reach different customers, and will also help you to “anchor” your prices. Follow these tips to set the correct price points for every item in your line.

What is Product Line Pricing

Product line pricing is a pricing strategy in which a company offers a range of products at different price points. This allows the company to appeal to a wider range of customers and to generate more revenue. The company may also use this strategy to encourage customers to purchase more expensive products by offering a lower price for the less expensive products.

A product line is a set of products that are similar, but differ in features or pricing.

Product-line-based pricing is a way to segment your goods and services in order to create different levels of perceived quality for consumers. This can be a helpful way to communicate the value of your offerings and make sure that customers understand what they are getting.

Businesses often position their most expensive products with the most features and cutting-edge technologies at the highest price.

You will be offering a base product, which has fewer features and lower performance expectations, at a lower price

Product line prices can vary depending on the type of product you’re selling. Here are a few of the most popular types of pricing models.

Businesses often use product-line-pricing strategies, which allow them to offer multiple variations of the same product or service. This can be helpful for businesses that want to appeal to different types of customers, or who want to set their products apart from competitors.

Why do companies use product line pricing?

It’s hard not to mention it earlier—pricing your product line well makes your company more appealing to everyone.

Not everyone is looking for a specialized product, so the more needs your product can meet, the more popular it will be.

Price Difference Boosts Sales

Price gaps can create the perception that there are different levels of quality. It’s important to establish the quality of your company in the public’s mind.

Price differentiation is key to maintaining distinct sales narratives and preventing product cannibalization.

Creating products that are complimentary to each other can increase sales. Rather than creating products that directly compete with each other, create product bundles that work together.

The Toyota Camry offers an affordable alternative to the more expensive and luxury-oriented Lexus.

A larger variety of customers

A product line with a variety of pricing options is likely to attract customers with different needs who can be accommodated by different cost categories. This provides a great opportunity to expand your customer base and reach a larger market.

Not every prospect will need your most expensive product, but if you’re strategic with your pricing model, those customers who don’t need your highest-end offerings can still find a plan that’s perfect for them. You don’t need to shell out a lot of money for a great product or service; oftentimes, the simpler versions are just as good as their more expensive counterparts.

Why limit yourself to one customer group when you can have three different ones?

Product Line Pricing Strategies

Now, we’ll go over the various product-line price strategies that you can choose from. The option that is best for you will depend on your position in the marketplace and the nature of the products you sell.

Captive pricing

Captive Pricing is a strategy where a company offers a product or service at a fixed price. This will attract a high volume amount of customers and increase your profits.

That product is sometimes priced very low or even given away for free in order to attract new business.

The idea behind this strategy is to encourage customers to purchase more products to complement their initial purchases. Some real world examples include a game console bundled with free game downloads, or a phone with a free mobile phone deal. In software as a service, an example might be the free trial.

Here, your low-priced offer is a free trial.

This will only include one or two features.

The goal is to make users see the value of the additional features, so that they will be willing to pay for them or continue to use them after a certain amount of time.

We can take a look at how Wistia handles their pricing structure.

Our free plan is great for getting a taste of what we offer, but if you’re looking to do more, then you’ll want to consider upgrading to a paid account. 

Leader pricing

Leader pricing is an effective way to increase store traffic and sales. By offering discounts on items, customers are more likely to visit your store and make a purchase.

The idea behind this strategy is to get people into your store. Once they are inside, they will likely buy more items, including full price ones, because they already saved money by buying the discount item.

Bait pricing

This tactic is a little sneaky.

The idea behind the bait-pricing strategy is to offer a large discount on a limited number of items in order to attract customers to your store or website. Once you’ve attracted them, you can sell them a more expensive version of the product. However, this is not the same thing as “bait-and-switches,” where sellers have no intention of ever selling the “cheap” item.

Price bundling

Packaging a number of related items together and selling them as one unit is called a price bundling strategy. Bundling is often seen around holiday deals or when a car is sold with a variety of accessories.

In SaaS, it’s common for companies to try and package lower-value or less popular features with the high-value, in-demand features that are more likely to result in a purchase. By doing this, they can increase the perceived value of their product while still providing customers with the features they want and need.

This is the pricing structure of HubStaff, a software-as-a-service company that tracks employee time. They have a deep understanding of the worth of each of its products, represented by dots on the graph.

Its pricing strategy will be influenced by its understanding of which product attributes are more valuable to customers. The most valuable, high WTP, products will be highlighted in any bundles.

The lower-priced, lower WTP feature is included to make the deal more attractive.

product line pricing (Source)
 

Drawbacks of product line pricing

While product-line-based prices have a number of benefits, they’re not always the best option. There are downsides to the method, and it’s important to be aware of them.

Product line-based pricing can be less effective during economic downturns, as consumers may favor lower-priced products regardless. This could leave you stuck with expensive stock that is difficult to sell.

One drawback of product-line-based pricing is that it can limit the ability of a company to respond to changes in the market. For example, if prices for a particular good rise, a company may not be able to increase its prices for all products in that good’s category. This could lead to lost sales and market share.

Additionally, this pricing strategy can make it difficult for a company to enter new markets or offer new products, as it may not be able to price these items competitively.

This strategy only works if your product or service has a variety of features and appeals to multiple personas.

Although your product should have a wide appeal to a wide variety of people, if your business is still in its infancy, you might not have all the features you want yet.

Conclusion

Product line pricing can be tricky, but it’s important to get it right. Use these tips to help you find the perfect price point for each item in your lineup. And remember, the most important thing is to balance making enough money to keep your business running and making sure your prices are fair and competitive.

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