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Line Modernization, Featuring, and Pruning

Product lines need to be modernized. In rapidly changing markets, modernization is continuous. Companies plan improvements to encourage customer migration to higher-value, higher-price items. Marketers want to time improvements so they do not appear too early (damaging sales of the current line) or too late (giving the competition time to establish a strong reputation).13 The firm typically selects one or a few items in the line to feature, possibly a low-priced item to attract customers or a high-end item for prestige. Multi-brand companies all over the world try to optimize their brand portfolios, ensuring that every product in a line plays a role. This often means focusing on core brand growth and concentrating resources on the biggest and most established brands.

Product Mix Pricing

Marketers must modify their price-setting logic when the product is part of a product mix. In product mix pricing, the firm searches for a set of prices that maximizes profits on the total mix. The process is challenging because the various products have demand and cost interrelationships and are subject to different degrees of competition. We can distinguish six situations calling for product mix pricing, as shown in Table 9.2.

TABLE 9.2 Product Mix Pricing Situations

1. Product line pricing. The seller introduces price steps within a product line and strives to establish perceived quality differences that justify the price differences.

2. Optional-feature pricing. The seller offers optional products, features, and services with the main product, the way automakers offer different trim levels. The challenge is which options to include in the standard price and which to offer separately.

3. Captive-product pricing. Some products require the use of ancillary or captive products. Manufacturers of razors often price them low and set high markups on razor blades, the captive product. If the captive product is priced too high, however, counterfeiting and substitutions can erode sales.

4. Two-part pricing. Many service firms charge a fixed fee plus a variable usage fee. Cell phone users often pay a monthly fee plus charges for calls that exceed their allotted minutes. The challenge is deciding how much to charge for basic service and variable usage.

5. By-product pricing. The production of certain goods (such as meats) often yields by-products that should be priced on their value. Income from the by-products will make it easier for the company to charge less for its main product if competition forces it to do so.

6. Product-bundling pricing. Pure bundling occurs when a firm offers its products only as a bundle. In mixed bundling, the seller offers goods both individually and in bundles, normally charging less for the bundle than for the items purchased separately. Savings on the price bundle must be enough to induce customers to buy it.

 
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