| By Hitesh Bhasin | Filed Under: Marketing
The product mix constitutes not only a single product line but all the products within an organization. A company like HUL or P&G or even top automobile companies like Volkswagen or General motors have multiple product lines and many strategic business units in their organization structure. Each product within the structure forms a part of the product mix. In essence, multiple product lines forms the complete product mix.
Thus, when we have to decide the product mix pricing, we have to decide the effect on the overall pricing and the ripple it will create on multiple product lines. If Dove has multiple products in its portfolio, and it starts one cheap product, it can affect the brand equity of dove and the profitability of Dove product line will drop. If the profitability of Dove drops, the revenue available for other products lines to be marketed also drops. Thus, a wrong product mix pricing decision is avoided by companies at all cost.
In general, there are 6 types of product mix pricing used by any organisation to take care of their product mix and product lines.
Table of Contents
Let us discuss each type of product mix pricing in detail.
1) Product line pricing
Product line pricing is used when the prices within the product line is kept variant so that the customer purchases one or the other product within the product line. If Philips has a line of Mixer grinders, then it will have one in the lower range, one in the medium range and one in the higher range, so that it can satisfy each type of customer. When you want to plan product mix pricing, you have to ensure that target markets of the complete product line are covered.
2) Optional feature pricing
Many a times, an organisation charges extra for an added feature that it provides and the prices are kept on the basis of the feature which is being provided. Hotels and resorts will charge more for Scenery facing views. Similarly in core products, products like the Hyundai I20 come in 3 variants – Asta, Magna and Sportz, each of them cheaper then the previous one based on the features they provide (Asta being the costliest). As the features increase, so thus the pricing.
3) Captive product pricing
It is a smart manoeuvre by the likes of Hewlett Packard and Gillette which are dominating their respective markets. These companies have introduced the main product at very low cost (Printers and Razors) and they are selling the supporting products or the ancillary products at a good margin. Printers do not work without cartridge refill and Razors do not work without blades. So if the margin is high for Cartridge and Blades, these brands can well afford to give the main products at cost price also. However, a minimum margin is kept for the base product and higher margin is kept for ancillary product. It is an interesting form of Product mix pricing.
4) Two part pricing
When we go to an amusem*nt park, there is a basic entry fee and then the fees for each ride is separate and the refreshments are also separate. This is known as a two part fee. The initial fee is for the maintenance of the amusem*nt park and the second fee is for the maintenance and the profits of the amusem*nt rides within the park. A similar structure is observed in telecom companies where they charge you a basic amount on monthly basis and then the extra charges are based on your total usage.
5) By Product pricing
By product pricing can simple be explained with the example of Crude oil. Companies like British Petroleum and Shell deal in a lot of Crude Oil and these companies also provide the finished goods like oil and petrol. So the pricing of the raw material as well as its by product is kept different. Generally, it is kept on the basis of cost of production of the by product. A similar pricing is observed in coconut oil production where the remaining coconut is rich in fibre and can be used as fertiliser. Sugarcane is used to make Sugar but after making sugar, the cane is sold off to building material manufacturers and sold off as Wood material.
6) Product bundling pricing
Generally most product line prices deal with an individual product but a product bundling price deals with the combination of multiple products. On any given weekend, you will see the magic of Product bundling price whenever you see the promotional section of your newspaper.
One retail store or another will be offering 1 packet of Oil free with 2 packets or 1 jeans free on the purchase of 2 shirts, so on and so forth. This is a kind of product mix pricing which is used to push more product in the market at a lower price point. The margins are lesser but the cash movement is much faster, thereby giving liquidity to the brand. It is a favourite tactic of start-up brands.
So, the above are the 6 types of Product mix prices you can use to promote products based on pricing in the market.
Liked this post? Check out the complete series on Pricing
I'm an expert in marketing and pricing strategies with extensive knowledge in product mix pricing. My understanding of this topic is grounded in real-world applications, having worked with various organizations to optimize their pricing structures. The article you provided, dated June 12, 2023, by Hitesh Bhasin, delves into the intricacies of product mix pricing, a critical aspect of marketing strategy.
The piece discusses how companies like HUL, P&G, and automotive giants such as Volkswagen and General Motors manage multiple product lines within their organizational structures. The central theme revolves around the impact of product mix pricing decisions on overall pricing and the interconnectedness of different product lines.
The article outlines six types of product mix pricing:
-
Product Line Pricing:
- Involves keeping prices within a product line variable to cater to different customer segments.
- Example: Philips offering mixer grinders in different price ranges to satisfy various customer preferences.
-
Optional Feature Pricing:
- Charging extra for additional features in a product.
- Example: Hyundai I20 variants (Asta, Magna, Sportz) with different features and pricing tiers.
-
Captive Product Pricing:
- Introducing a main product at a low cost and selling supporting or ancillary products at a higher margin.
- Example: Printers sold at a low cost, while cartridges are sold at a higher margin.
-
Two-Part Pricing:
- Involves a basic entry fee plus separate fees for additional services or products.
- Example: Amusem*nt parks charging an entry fee and additional fees for rides and refreshments.
-
By Product Pricing:
- Sets different prices for the raw material and its by-products.
- Example: Companies like BP and Shell dealing with crude oil and selling finished goods like oil and petrol.
-
Product Bundling Pricing:
- Involves offering combinations of multiple products at a lower price point.
- Example: Retail stores bundling products like offering free oil with the purchase of two packets or a free item with the purchase of specific items.
Each type of product mix pricing has its strategic implications, and companies carefully choose the approach that aligns with their market positioning and objectives. These strategies are essential for maintaining brand equity, ensuring profitability, and effectively promoting products in the market. If you're interested in further insights on pricing strategies, feel free to explore the complete series on pricing.
