December 11, 2011

Product-Line Pricing - Managerial Economics

Product differentials are tied solely to the characteristics of the product and its use, size differentials, quality differentials etc.

Alternative policies (General)
1. Prices are proportional to full cost.

2. Prices are proportional to incremental costs

3. Profit margins are proportional to conversion costs

4. Prices that produce contribution margins that depend upon the elasticity fo demand fo different market segments of different products.

5. Prices that are systematically related to the stage of market and competitive development of individual members of the product line.

Demand characteristics peculiar to multiple-product lines like complementarity and substitutability may existing within a product line also. Products in a product line may be substitutes for each other as different models of television. They may be complementary. But the complementarity may be over a period of time. In a subtle way, it may enhance the reputation of the firm and make more products acceptable.

Specific Issues in Product Line Pricing

Pricing products that differ in size

Pricing products that differ in quality

Charm prices

Pricing special designs

"Load factor" price differentials

Pricing repair parts

Pricing leases and licenses

Reference: Managerial Economics by Joel Dean

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