When to Use a Product Line Pricing Strategy

!±8± When to Use a Product Line Pricing Strategy

Let me state the obvious: you can only use a product line pricing strategy if you have a whole product line or if you are in the process of building a whole product line (more than one product, and usually more than several products). This statement seems self-evident but remember products are not usually brought out in a full line; they are introduced one at a time.

So, to use a product line pricing strategy you will need to keep track of each product's life cycle stage, how inter-dependent the products are, when you estimate a product will leave the line, when a new product is scheduled to enter the line, and how the products in the line complement each other. All of these product line elements will affect your product line pricing strategy.

One way of looking at pricing for a product line is to consider pricing and profitability of the whole line, not only individual products of the line. In this type of price analysis, you might have some products that lose money but they help pull in buyers for those products that make money (preferably that make a lot of money). Other products in the line might just break-even but they contribute to the fullness of the line and help support the money-making products.

The other way to look at product line pricing is to analyze the importance of one or more products to the whole line. For example, for a car dealership, the car model is the product, and the accessories, extended warranties, service package, color, sunroof and other options are the rest of the line items. Those line items would be rather meaningless, for the most part, without the car as the primary product.

Product line pricing strategies can be further complicated by competitive activity by product, not exclusively by line. If you have five competitors for one of your products in the line, and then only two competitors for the other products in the line, you might use a different price strategy for the product with lots of competition, than the other line products.

Some more specific product line price strategies are optional-feature pricing (such as in the car example above); ancillary product pricing (such as a digital camera that is packaged with a lens, a case, a battery charger, a memory card, etc.); two-part pricing (such as a museum that charges for general entrance and then adds an additional charge for entrance to a special exhibit); product bundling pricing (in the above car example, if you buy the car and the accessories or one of the other options at the same time you will receive a better price than if you buy some of the accessories separately or later).

Make sure to build a strong promotional program for product line pricing; buyers need to clearly understand what they are buying, what the differences are within the line (especially if there is not clear differentiation), and the benefits of buying bundles, optional features or other line accessories at the same time as the primary product. Your buyers will also need to understand the pricing and value differences between the products and within the line.