Wednesday, June 20, 2012
As discussed in my previous blog, pricing can be a difficult thing for any firm to under go. One such area of pricing mentioned was product-line pricing. There are several ways for pricing within product-line pricing as described by the textbook. Product-line refers to a group of closely related products offered by a company to target consumers that may have different needs, within the product line. One way of product-line pricing includes captive pricing. Captive pricing is when the very basic product in a particular product line is priced relatively low, then items that may be nessesary to make that basic product better may also be purchased at a higher price. One great example given in the book is razors for shaving. You can buy the handle and one or two heads for very cheap, but when you need replacement heads for the razor, they are more expensive. The book also mentioned another example of gaming systems. The gaming system itself, very basic, is relatively cheap, but adding more items to enhance the gaming experience can be expensive. The controllers, games, audio, television set, memory cards, and the list goes on and on will cost more. Another example of produt-line pricing involves premium pricing, which is described as having a product line with many versions of the same product. The upper end of these products carry the higher price and on down the line to the basic products having the lower end cost. This pricing method is commonly used when marketers want to capitalize on the gains that can be had with the higher end premium products. Bait pricing is another type of product-line pricing. This technique is when marketers put low prices on one item within the product line to seem attractive to customers, with intentions to get the customer to put the higher priced item in the product-line. This example works when a retailer offers low prices on lower product-line items, but has the higher quality items available as well, hoping that the low prices get the customers to come, but eventually have the customer buying the higher quality item. Price lining is the final example, where the price is staircased, and it keeps the demand curve in that staircase form.
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