4 strategies for product line pricing
Now we come to the motherlode: how you actually go about choosing one of the various product line pricing strategies available. The best option for you will differ based on your company’s position in the market and the nature of your product.
Captive pricing involves your company taking advantage of a product that will be used primarily to attract a large volume of customers. That product can sometimes be a loss leader—a basic product sold for a very low price or free in order to bring in new business. The point is to encourage a customer to buy additional products that enhance their original purchase.
Real-world examples might include a games console packaged with free games or a free phone handset with a wireless contract (as we saw above in Apple’s product line pricing strategy).
In SaaS, an example might involve using the freemium model. Here, your lower-price offering is a free subscription. This option will include only one or two key features. The aim is to demonstrate the usefulness of those included features, with the intent to charge extra for additional features or for the use of the original features after a certain period of time has elapsed.
Leader pricing involves the assiduous use of discounting: putting items on discount helps pick up store traffic. The aim here is to get your customers inside your store or on your web page—once they’re there, they’re more likely to pick up full-priced accessories for the discounted item they’re buying and continue to browse.
Because customers are saving money by purchasing discounted Item A, they are more likely to also purchase full-price Item B,C, etc., as long as they’re in the store.
This strategy is a little more devious. Bait pricing involves offering a huge sale on an item that’s in limited supply.
As with discount pricing, bait pricing is intended to drive customers to your site or store where you can offer them a similar, higher-priced item once the item on sale is sold out.
However, bait pricing is not the same as bait-and-switch, in which the seller has no intention whatsoever of actually selling the customer the “bait.” This sales tactic is illegal, you know.
A tried-and-true product line pricing strategy, price bundling involves packaging several related items together as one item.
You can see this in package deals associated with holidays or in automobile sales where the car comes in a bundle with a whole variety of accessories. In SaaS, you see it all the time where companies attempt to package in lower-value or lower willingness-to-pay features of a product with those high-value, high WTP features that drive purchases.
This is the pricing matrix of Hubstaff, a SaaS company offering a product that keeps track of on-the-clock time for employees. They have an intimate understanding of the value of each of its product features, represented by a dot on the matrix. This understanding will inform its approach to price bundling. The high-value, high willingness-to-pay (WTP) features will be front and center in a bundle. The lower-value, lower WTP feature is there to sweeten the deal.