When you own a company, you need to see that each and every aspect and department is working fine. One such element which needs extra attention is the price of the product. We assume that people will automatically be ready to pay up extra when the product is of a high quality. But that is not always true. Some value has to be added to get a higher price for the product. And this is where product form pricing plays a role.
What is Product form pricing?
Product form pricing can be a subset of premium pricing and is one of the pricing techniques used when a company wants to get maximum benefit for its brand name or maximum leverage from recently launched popular products.
One of the users asked me a question on product form pricing & iI thought of writing out the answer as an article. Product form pricing is an interesting type of pricing strategy. Let me explain it with an example.
Supposing that company X launches a product – which is product A. This product was moderately well accepted in the market. Now company X launches product B which is very very well accepted in the market. The product has already used skimming price and has an average price in the market.
The company X decides, that it will try to take advantage of the hype and the loyalty which the users are showing. So it launches a variant which has a bit more features, and it increases the costing by 10%. But looking at the popularity of the brand, the company X keeps the price of product C to 40% higher than product B.
So, at minimal increase in cost, the price of the product is quite higher. This is product form pricing. Due to this pricing, even though the cost is less, the margins earned by the company are comparatively higher.
One company which I have seen repeatedly implementing product form pricing is Apple. If you look closely, Apple will have the same ear phones and the same laptop, but you will have to pay quite extra for various features even though the cost is comparatively lower.
In the above comparison, both the laptops are of 13 inch. If I compare the cost of the components added in the 2nd laptop, then the cost will be minimal, but the selling price is at least 30% more. That is the perfect example of product form pricing.
Can you think of any other companies using product form pricing?
Liked this post? Check out the complete series on Pricing