Why is price lining used by some retailers?
|
Figuring out the right price to hook consumers is a challenge for any business. Do your pricing strategies target consumers willing to pay top dollar for lots of features or do you offer a no-frills product for a lot less? By using a price lining strategy, you can do both. Show
With a price lining strategy, you offer a line of similar products at different prices to appeal to a range of consumers. A film studio might release a cheap DVD with no special features, one with a director's commentary and a two-disc special edition with tons of added features, each at a different price point. How Price Lining WorksPrice lining is a cost-centered strategy where you differentiate members of a product line based on price and features. Apple, for example, offers several current models of iPhone and iPad at different prices, distinguished by the added features of the more expensive models. In air travel, you can buy anything from bare-bones economy seats through the opportunity to travel in relative luxury. Like all pricing strategies, the goal is to generate more profit. Price lining can be effective at convincing consumers to buy the top-tier product because it offers so much more than the economy model. Some businesses use the economy option for loss leader pricing, setting it below market cost and trusting customers will check it out and then buy a fancier model. Price lining also appeals to budget-conscious consumers. By showing them the economy option next to the top tier, you can give them the feeling that they're getting a great bargain. If it has the features they need, they'll walk away with it thinking you've saved them money. Prices, Features and MarketingIf you want to employ a price lining strategy for your brand, the first step is selecting the models to sell and setting their prices. These pricing strategies typically include a low-, medium- and high-end product, but you can add more price points if you choose. To generate profits with a price lining strategy, you'll have to attach the right prices to the right products. There have to be enough added features on the more expensive models to justify the higher price, particularly at the top of the range. You may need some market research to determine the right mix of features and prices. You can add value to the top tier with price bundling. With this strategy, you offer customers a discount on related products, such as a backup hard drive for your computer or free silicon cooking tools with a set of expensive cookware. Price Lining AdvantagesPrice lining has several advantages besides hopefully boosting your net profits. A big one is simplicity, as all the products in the price line are variations on one basic model. That simplifies manufacturing and product design. Your marketing will also become simpler. A vehicle such as the Ford Explorer or the Prius may have dozens of special features and options at different price points. The marketing doesn't have to list them all individually; advertising and promotion focuses on the brand name and leaves selecting options until the customers come in to shop. Price Lining DrawbacksThe big drawback to relying on price lining is that it's one of the cost-centric pricing strategies. If, say, the economy slumps and consumers have less to spend, you might find customers flocking to the lowest-priced option and leaving top-tier products sitting on the shelves. If you get the price point/features balance wrong, customers may be unhappy. For example, if your upper tiers don't offer enough features to be worth the price, customers may resent the high price. If there aren't enough features on the bottom-tier offering to satisfy them, shoppers may feel cheated instead of happy with a bargain.
Price lining is the marketing (pricing) strategy where a marketer or retailer sets different prices for the same offerings because such offerings differ to some extent in terms of quality, style, design, features, size, attributes, benefits, package, and so forth. Price lining is also called product line pricing – for example, Coca-Cola company has different sizes of its drinks bottles and per different bottles, it charges different prices as such it offers family pack, party pack, with friends pack, just for taste pack, etc. In simple words, price lining means setting different prices for the product lines. Here, the price of the same product or service is categorized into different prices as the prices differ by quality, attributes, benefits, and other factors of the same product or service. It enables customers to choose the package that best fits their capacity – the price-sensitive ones will go for a low price and quality-sensitive ones will go for a high price because it is a human tendency to perceive that the low price product has low quality and vice versa. The price lining aims to simplify the buy decisions of customers, while for retailers, it helps to plan the purchases of required goods. It benefits businesses or retailers who adopt this marketing strategy to attract more consumers, provides different choices to consumers, makes offerings budget-friendly, costs less inventory, acts as a demo, and increases sales and profit however to implement it properly the marketer needs to critically study and understand market trends. Price Lining Strategies and PoliciesAfter understanding what is price lining, the next task is to understand what strategies and policies make it in a way that drives the anticipated results. A marketer or retailer can adopt the following strategies in the process of price lining.
Geographical PricingPricing is done considering the cost of shipping or distribution of goods from one area to another is called a geographical pricing strategy. There are several forms of geographical price, Point of Purchase Pricing: Point of purchase pricing involves pricing set differently for the customers willing to purchase goods in different territories. Here, the customers willing to purchase at the point of production get heavy discounts than the customers willing to purchase at the point of consumption because it involves distribution costs also. Hence, the customers are differentiated in this case. Uniform Delivery Pricing: In this strategy, the same delivery price is quoted to all the buyers of a particular geographical region; such as a uniform ‘postage stamp price’ for the whole SAARC region. The geographical region also can be classified based on economic development; such as rural areas and urban areas. Here, there may be one price for rural areas and a uniform price for an urban area. For international marketing, there may be three geographical prices; such as – (i) FOB Price; (ii) C&F Price; and (iii) CIF Price. i. FOB price means ‘free onboard price’, which is charged for the cargoes subject to export up to the nearest port of the exporter. That means, exporters will be liable to deliver goods up to the nearest port of the exporting country, for example, Nepalese exporters set f.o.b. price to their export cargoes for up to the Calcutta Port. ii. C&F price means the export price set considering only the cost of production and freight charges. Here, insurance charges are excluded; i.e., the exporter is liable to charge only the cost of production and the freight charges; while the importer will up be liable to pay insurance charge. iii. CIF price includes all costs of production, insurance charges, and freight charges for up to the port or destination of the importer. Price Discounts and AllowancesDiscounts are the rates or percentages of the deduction granted by the seller to th customer for purchasing goods. In other words, a discount means to put a reduced value on the product. While allowances are also discounts allowed for the task or work performed accordingly. There are several forms of discounts and allowances that a markter or retailer can use in his price lining process. i. Quantity Discount: Quantity discounts are the deductions from a seller’s price list intended to encourage customers to buy in large amounts. Therefore, the customers buying larger quantities get high discounts than the customers buying small quantities. ii. Trade Discount: Trade discounts are the deductions from the manufacturer’s price list offered to buyers (i.e., resellers including wholesalers and retailers) in payment for marketing functions the buyers will perform. Therefore, the manufacturer provides trade discounts to the wholesalers and retailers for buying and selling his products to the final consumers. iii. Cash Discount: Cash discounts are deductions granted by the seller to the buyers for paying their bills within a specified time, or for cash sales. Therefore, the customers willing to make cash payments upon the purchase of goods from the seller get a better or more attractive discount compared to the customers willing to purchase goods on credit. iv. Price-Off: Price-off discounts are deductions granted by a manufacturer to the customers temporarily to attract their attention to the product. It is printed in the package and the discounts are granted for a specified time may for one week, two weeks, or a month. But it may not be for more than three months. v. Seasonal discount: Seasonal discounts are deductions granted by the traders like wholesalers and retailers to the buyers to reduce their old stock of goods. This type of discount is provided for seasonal goods such as readymade clothes, wool products, etc. Promotional PricingThe third strategy of price lining is the promotional pricing strategy. Sometimes companies set the price for their products below the list price and sometimes even below the cost known as promotional pricing. A promotional pricing strategy is adopted when there is used to promote the products. The forms of promotional pricing strategy include leader pricing, cash rebates, psychological pricing, special event pricing, and so on. i. Leader Pricing: Under a leader pricing strategy prices are reduced on most common items or well-known items to win the customer’s mind or confidence. ii. Special Event Pricing: Under special events, pricing sellers reduce prices on certain occasions. Cash rebates are offered to buyers who buy the producer’s products within a specified period. iii. Psychological Pricing: It refers to the pricing strategy that is aimed at the psychology of the consumer. This strategy encourages emotional buying in the consumer. The major psychological pricing strategies are:
Discriminatory PricingUnder discriminatory pricing, the customers are charged different prices based on their income, class, living standard, bargaining power, age, and so on. For example, rich customers are charged comparatively higher prices than poorer ones. While visiting zoos and museums, adults are charged higher prices and children low prices. Product-Mix PricingProdcut mix is a set of product lines and other items. In product mix price lining strategy, for each product line, different pricing strategies may be required. These prices are to be modified from time to time to maintain or maximize profit on the company’s total product mix. In this case, the price may be difficult because of the existence of the interrelated demand or cost. In prodcut mix pricing, there are mainly six situations. i. Product-Line Pricing: Product-line is a set of inter-related items. Items are interrelated when there is demand and cost interrelation between the products. Samsung produces hundred of mobile with varied shapes, sizes, and features. If the company lowered the price of high-end smartphones it would decrease the demand for low-end smartphones. Moreover, if there is a minimal price difference between high-end mobile sets and low-end, people will opt for the previous. ii. Optional-Feature Pricing: Most companies produce several items along with the main item. For example, restaurants offer ‘food’ as the main item and ‘liquor’ or ‘cod drinks’ as the optional items. The primary objective of the companies adopting this strategy is to attract more customers as well as maximize their profits. Some companies offer low prices for the main products and high prices for the optional items. While some companies do the reverse. It depends on the situation or environment. iii. Captive-Product pricing: Captive products refer to an action or engaged products such as razor blades and camera films. Shaving machines are useless unless there are razor blades; similarly, cameras are useless if there are no films. Many companies produce complementary products such as Kodak Company produces cameras and films. While pricing these products, Kodak offers lower prices for its cameras because it can make more profit by selling more films. In some cases, the pricing strategy may be quite reversed. So the companies should carefully decide on pricing in these situations. iv. Two-Part Pricing: Sometimes customers have to pay two-part prices for the same product or service. For example, a telephone user has to pay a minimum monthly fee (as a basic charge) plus charges for calls beyond the minimum number (as an extra charge). In this case, the marketer has to offer the right prices for both basic minimum use and extra use. v. By-Product Pricing: Wastages of the industries are known as by-products. Since the disposition of these by-products involves certain costs, the companies try to offer these products to those customers for whom these by-products may be valuable or useful. Because any income earned from the by-products will make the company easier to charge a lower price on its products. vi. Product-Bundling Pricing: Some companies produce inter-related products. Sellers do not like to sell them separately; they often sell this product in sets like spoon dinner sets, and so on. Since most of the customers do not like to buy goods sellers have to reduce sufficiently their price, sometimes during occasions, they may offer even below the cost. If sellers try to sell them at the usual price, which can be charged to the products while selling them in separate units, buyers do not like to buy them. So companies try to set a separate price for their products for selling them in sets and individual units. Price Lining ExamplesThe examples of price lining can be understood by following products and services. iPhoneNow you can see above the one example of price lining implementation done by Apple Company. The same iPhone set is priced differently because it is different in size, features, style, design, attributes, etc. Such activity may help Apple to attract a broader range of customers and customers also can select a set that fits their budget. Thus, price lining is not only for the company’s benefits rather it is also for customer prosperity. Online Service In another example, you can see the online service of a site that provides security and performance for internet applications. Though, it has one service it has offered at different prices naming is a free plan, pro plan, business plan, and enterprise plan. In a free plan, one can get a simple benefit, in a pro plan a better service than free, and in business better than pro, and so forth. Hence the benefits are different the prices are also charged differently. Why is price lining used?It gives the impression that a product has both budget-friendly, standard options and premium options with extra features and benefits. Price lining is intended to appeal to both higher-end and value-conscious buyers by giving them a choice between better product and a better deal.
Why do retailers practice price lining strategies?Price lining is a technique used by retailers to group common items at set price-points. Rather than setting the retail price based on cost or competition, price lining is a way to simplify the pricing of assorted goods by establishing tiered price points that can support assortments of goods.
How does price lining benefit the consumer?Price lining provides an added indirect benefit to consumers in the fact that they can buy a certain product with lesser features and benefits for cheaper just to get the hang of it or to see if it actually is of any use to them.
What company uses price lining?Price lining is also called product line pricing – for example, Coca-Cola company has different sizes of its drinks bottles and per different bottles, it charges different prices as such it offers family pack, party pack, with friends pack, just for taste pack, etc.
|
