Hey there, savvy entrepreneur! Let’s dive into the wild and wacky world of product mix pricing. Imagine you’re a famous high-end car manufacturer. You decide to lower the cost of one of your models to attract more sales. What happens next?
Chaos, that’s what!
Lowering that price might throw your entire brand’s perception into a tailspin. Suddenly, your posh cars are on the clearance rack. Yikes! Let’s not have that happen.
So, how do you keep your pricing strategy from face-planting? Well, join me on this journey of discovery!
What Is Product Mix Pricing?
Product mix pricing is the secret sauce that ensures your entire product lineup shines like a well-polished apple. It’s all about setting prices that work together, like a harmonious orchestra, rather than focusing on each solo artist. Get it right, and you’ll be the rock star of profitability.
Why Product Mix Pricing Strategies Matter
If you’re setting prices in isolation, you might just end up sabotaging your profits. Product mix pricing strategies make sure the whole band is playing the same tune, maximizing your revenue symphony and keeping your brand jamming.
This is especially important in today’s market, where brands are increasingly expanding their product mixes, leading to greater complexity in pricing.
For product mix pricing, think about the lifetime value (LTV) to your customers. Pricing strategies should aim to attract customers for the long haul rather than just immediate sales.
And, let’s face it, if your startup isn’t raking in the dollars yet, it’s time to question if your pricing playlist needs a remix.
5 Product Mix Pricing Strategies
Ready to explore them?
| Product Mix Pricing Strategy | Description |
| Product Line Pricing | Setting prices across an entire product line |
| Optional Product Pricing | Pricing optional or accessory products sold with the main product |
| Captive Product Pricing | Pricing products that must be used with the main product |
| By-Product Pricing | Pricing low-value-by-products to “get rid” of them |
| Product Bundle Pricing | Pricing bundles of products sold together |
1. Product Line Pricing
Craft prices across your product line with the finesse of a pastry chef balancing flavors. Consider cost, competitor prices, and customer perceptions. Neglect customer needs, and you’re serving up a sad donut instead of a scrumptious cake. Buyer’s perception rules! Don’t ignore it!
We have a great article on the different pricing strategies you can take for each product, and the factors that influence how you set the right price. Seeing as the customer’s sense of value in a product is integral, you want to start thinking about a product as a bundle of benefits provided by paying a certain price.
If you don’t consider customer needs, preferences, and willingness to pay, you’re either going to harm demand for the product by setting it too high or offer a price lower than what is expected and damage profits. That’s why customer-value based pricing should be your go-to strategy.
2. Optional Product Pricing
Think of this as the cherry on top. This is about pricing optional or accessory products sold with the main product. But be careful in deciding which items to include in the base price and which to offer as options.
Always remember to focus on the value you’re providing. By developing valuable add-ons and optional products that enhance the overall offering, you justify having a higher price point.
3. Captive Product Pricing
You price products that must be used with the main product. Think about a fancy coffee maker that uses pods made by the same company. Companies often price the main product low and set high markups on the captive products, but you must avoid customer resentment.
For example, the increasing use of microtransactions in mobile games and apps is a controversial issue and raises questions about how ethical this kind of pricing is. What kind of startup do you want to be?
In saying that, some of the biggest companies on the planet use this strategy. Think about Gillette and game consoles like Playstation and Xbox. You end up paying more for the games and subscriptions than the actual machine.
In 2021, Apple faced criticism for its decision to remove the power adapter from the iPhone 12’s packaging, citing environmental concerns. However, many perceived this as a captive product pricing tactic, as customers were essentially forced to purchase the adapter separately if they needed it.
4. By-Product Pricing
You set prices for by-products to make the main product more competitive. Companies try to find markets for these by-products to offset disposal costs and potentially generate additional revenue.
It’s like turning broccoli stems into delicious soup — unexpected, but entertainment for your bottom line.
5. Product Bundle Pricing
Wrap several products in a cozy price blanket. Who doesn’t love a good bundle deal?
Amazon’s use of product bundle pricing has led to a significant increase in sales, with some bundles seeing a 25% increase.
Moreover, the Apple One subscription service bundles Apple Music, Apple TV+, Apple Arcade, and iCloud storage at a reduced price compared to subscribing to each service individually. This highlights how tech companies are leveraging this strategy to increase customer retention and revenue.
What these companies often do is present a decoy option in their pricing tiers so that the desired tier seems like a no-brainer. This psychological tactic can nudge customers towards higher-priced options.
An example of this is The Economist. They published three subscription options:
- a) web-only version for $59,
- b) paper and web version for $125,
- and c) paper-only version for $125.
As a result:
- no one subscribed to the purely paper version.
- 16% subscribed to the web version,
- and an impressive 84% subscribed to paper+web!
When they tried to offer only two options (web and paper+web), only 32% subscribed to paper+web, while 68% chose purely web.
By adding a completely pointless option, the newspaper earned significantly more than when both options were meaningful.
The Benefits of Having a Good Product Mix Pricing Strategy
Companies that use product mix pricing strategies see an average reduction of 10% in costs, according to a study by Bain & Company.
It also increases profits. The goal of the strategy is to maximize the profitability of the entire mix, not just individual items. The overall success of the business matters most rather than individual product performance. For instance, pricing a high-end product too low might boost its sales but cannibalize the sales of more profitable items in the mix.
You’re looking for that goldilocks moment for your business.
Difficulties in Sticking to a Strategy
Subscription boxes often utilize product mix pricing strategies, particularly product bundle pricing, to entice customers and increase the perceived value of their offerings. However, a common complaint among subscribers is the lack of flexibility and customization options.
This suggests that businesses should explore ways to balance the benefits of bundling with the growing consumer demand for personalized experiences.
But it also shows the problems associated with any strategy: is it flexible and strong enough to tackle challenges in the market and changes to the brand? Stay flexible, like a yoga master, to groove through this pricing challenge!
Aside from that, it’s become increasingly more complex to hit on the right strategy with the rise of digital products and services. For instance, software companies often offer different subscription tiers with varying features and usage limits. Determining the optimal price points for each tier requires a deep understanding of customer segmentation, value perception, and competitive dynamics in the digital landscape.
Another problem is that product mix pricing strategies can be particularly challenging for small businesses with limited resources and market data. However, there are tools and techniques available, like market research, analyzing competitor pricing, and leveraging customer feedback, that can provide valuable insights into pricing optimization.
Takeaways
Be data-driven. Business begins when slogans end and numbers appear. Don’t rely on gut feeling or assumptions; track metrics, analyze results, and adjust pricing strategies accordingly.
If you have no idea how to create a brilliant strategy, ask yourself: ‘Why am I doing this?’ Before setting prices, clearly define your objectives. Are you aiming for market penetration, maximizing profitability, or something else? The answer will be your guiding light in your product mix pricing.
Strike the right chord, and your product mix will be the symphony to your business’ skyrocketing success!
