Optional product pricing means to determine the pricing of accessories or optional products along with the main product. Companies that use this pricing structure also offer to sell additional goods in addition to their main products.
With this pricing, premium product sales can be boosted or clients may be encouraged to upgrade to a more expensive product.
There are numerous approaches to incorporate optional product pricing. As an example, a business might provide two variations of a product, with the more expensive version having more features or advantages. Or, a business might give customers who buy a product’s basic version discounts on upgrades.
There are various product pricing strategies But this article explains optional product pricing strategy and how it’s pros and cons. You will also get to know about other pricing strategy i.e captive pricing. If you want to know the selling price of your products, then you can use this FREE google chrome calculator.
What is Optional Product Pricing?
There are two key components of optional product pricing:
Base Product: The primary attraction for the customer or the reason they are buying. It meets the needs of the consumer and doesn’t need the add-on item to work. Loss leaders are another name for base items.
Additional Product: A product that someone who bought the base model could be motivated to buy to improve their experience with the base model, such as additional software features or the inclusion of GPS or satellite radio when buying a car. The selling of additional products will increase net profit margin.
Although they are both founded on related ideas, this pricing strategy and captive product pricing should not be conflated.
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Key Points of Optional Product Pricing
- By enabling clients to purchase additional items at a discounted price, optional pricing can help you enhance the sales of your products.
- Optional pricing enables you to sell more expensive items to customers who are willing to pay a higher price, which can help you increase revenues.
- Offering clients the option to combine their purchases with others will boost your overall sales.
- By providing older or less liked products at a discount, optional product pricing enables you to reduce your inventory of such items.
- You can use optional pricing as a marketing technique to draw in new consumers or encourage current ones to make another purchase from you.
Pros and Cons of Optional Product Pricing
Customers can pay a higher price for a good or service that comes with extra features or benefits under an optional pricing model. Although optional pricing has several applications, it is most frequently employed as an upsell strategy in establishments like restaurants, hotels, and online retailers.
The use of optional pricing has its pros and cons, just like any other pricing strategy.
Increased sales: Businesses can experience a big rise in sales by giving customers the opportunity to pay more for extra value.
Greater customer satisfaction: Customers are frequently happier with their purchases when they believe they are getting a good deal on an enhanced product or service.
Improved perceived value: When done properly, optional pricing can help in raising a product or service’s perceived value in the eyes of the consumer. Repeat business and effective word-of-mouth advertising may result from this.
Other the other side, the optional product pricing has some cons as well.
Poorer conversion rates: Giving customers too many choices can result in lower conversion rates because they become confused and overwhelmed.
Profit reduction: Higher prices for goods and services with additional value translate into margin reduction unless volumes dramatically increase. This is especially true if competing companies start selling comparable optional upgrades for less money.
Even while most consumers are aware that they might need to pay a little bit more, many of them are resentful of this culture.
Optional Product Pricing Example
Here is an excellent optional product pricing example. Casetify sells phone cases for Android and iOS mobiles. Phone cases are the base product, and accessories like screen protectors or phone straps are optional products that are displayed to clients in a checkout window. This company uses the optional product pricing model for its products.
Other than the phone case, customers are not required to buy anything else, however, the additional item may improve their experience.
Other Strategy (Captive Pricing)
Pricing for products that must be used in combination with the main product is known as captive product pricing. Captive items include, for instance:
- printers cartridges
- razor blade cartridges.
Printer, video game, and razor manufacturers commonly price their main items low and overcharge the supplies highly. As an example, consider Gillette, which offers inexpensive razors but earns money mostly from the replacement cartridges.
Companies that use captive product pricing must exercise caution since customers who are coerced into purchasing pricey supplies may decide to sever their relationship with the brand.
Optional product pricing is an excellent strategy to raise the average order value and boost your profits. Customers can pay more for upgraded or premium versions of your items, which allows you to earn more money while still giving them something of value.
When employing optional product pricing, it’s crucial to make sure that the upgrades are worthwhile and that the price difference is appropriate. If not, you run the danger of losing clients and hurting your reputation. However, when used properly, optional product pricing can be a powerful tool for expanding your business.