Product Line Pricing
Product Line Pricing or Price Lining is the process used by manufacturers and retailers of separating goods into cost categories in order to create various quality levels in the minds of customers. Effective product line pricing by a firm will usually involve putting sufficient price gaps between categories to inform prospective buyers of quality differentials.
Normally companies have a range
of products (rather than single products). Pricing then typically starts at the most basic, simplest product. As we go up the product line, features or other differentiators are being added to the product and the price is increased accordingly.
ASPECTS OF PRODUCT LINE PRICING
- The difference in the price from one product to the next level is called a "price step".
- The amount (size) of the price step needs to be planned carefully as it may change consumers' perceptions.
- If the step is too small, consumers may pick up a product higher in the product line too easily.
- If the price is too large then consumers may prefer the product lower in the product line.
THE 3 C's of PRODUCT LINE PRICING
Price steps are actually based on 3 C's:
- Cost Difference between the 2 products;
- Customer perception of the difference; and
- Competitor's prices.
If a price step is larger than the cost then the company benefits when customers buy a higher version of the product.
Example: Models of mobile phones such as iPhone 11 (64GB, 128GB & 256 GB) and iPhone 11 Pro, etc.