What Is Price Lining?

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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.

TL;DR (Too Long; Didn't Read)

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 Works

Price 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 Marketing

If 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 Advantages

Price 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 Drawbacks

The 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.

References

About the Author

Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs. His website is frasersherman.com

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