Let us breakdown the definition. A product is sold at a pre-decided price, which is equal or less than the maximum retail price or list price of the product. But to increase the sales of the product or to uplift the number of customers, retailers or even companies have offers and give freebies.
Usually, the free product is the same product which is purchased in bulk, and it comes at either lesser or free of cost — for example, One bar of soap-free on purchase of 4 bars of soap.
So one bar is priced at $1.25, but customers can get 5 for $5. This reduces the effective net price of the product per unit.
When should you use Multiple Unit Pricing?
#1. Higher Sales by Multiple Unit Pricing
The strategy of Multiple Unit Pricing is used either by organizations or retailers to push their product for higher sales. Higher sales are targeted to achieve higher market potential and higher conversion of the customers.
Usually, this is implemented during large sale days, which are coupled with festival days or other shopping days like Black Friday. The price is reduced with the bulk purchase, and the customer is shown about the drastic reduction in price and the price benefit which he will be achieving.
Higher sales are also a concern in the case of target achievement. When the target of the sales team is to be achieved, and the duration for Sales closing is very less, in such cases, high sales becomes a priority, and Multiple Unit Pricing is used.
#2. Exhausting existing stock
When the companies or the retailers have a stock lying for several days, which may border on expiry or be near expiry, in such cases the stock is tried to finish off within the given date, and multiple-unit pricing is used in such cases.
It is mandatory, especially in case of pharmaceutical products or other consumer care products that they should not be sold after expiry dates and in such cases, the stock should be thrown off or disposed of suitably, which will be invariably loss for everyone.
To avoid such losses, multiple-unit pricing is used, and the stock is liquidated by providing bulk offers.
#3. Market Penetration with new products
Most of the times when a product is launched, it has to face the competition of existing products. The existing products have been in the market for a long time and have a bigger and wider customer base.
Combating an established product in the market requires a penetration strategy which will not only increase the customer base but also increase sales of the product over competition and provide an edge over the competition by increasing the market share.
#4. Customized Deals
Multiple unit pricing is also used in case of customized deals. When there are bulk orders and customized deals, the buyer expects a better price on the products. Few free units are coupled with the order in order to reduce the per product price, thereby implementing Multiple Unit Pricing.
Multiple unit pricing is used in customized deals in case of dealing with supplier-manufacturer deals. For example, the deal is that on purchase of 100 units of a certain product, the supplier will get ten units for free of cost, the buyer can propose a deal of buying 500 units of products at one time and request for 60 units free.
#5. Penetration with existing products
When organizations want to increase the existing share of the products, multiple-unit pricing is provided. This not only increases sales but also gets a number of customers and penetrates existing share of the products in the market.
Example, to increase the sale of Pantene Shampoo it will be coupled with offers of Buy 4 Get 1 Free or Buy 1 Get one free.
Pros and cons of Multiple Unit Pricing
- Multiple unit pricing helps in faster liquidation of the products. The stocks are consumed faster, which helps to get more sale per unit of time for the organization.
- It helps the customers or buyers to get a better deal and reduces the per-unit price of the product.
- It helps new products to establish themselves by providing affordable prices to the customers and providing lucrative prices. This makes the product more economic ergo attractive to the customers.
- Multiple unit pricing reduces the profit margin of the products for the companies. Not only the companies, but it also reduces the profit margins of middlemen like retailers and distributors.
- Dealing with multiple unit pricing is cumbersome in case of record keeping. Multiple unit pricing is difficult to maintain in accounting books.