Pricing Product Portfolios – Creating Value

Razor_blade

Pragmatic Marketing’s activity/box of the month is Product Portfolio. Combine this with pricing and you have a gold mine of great content ideas.

The most important concept at the intersection of these two topics is this:

Knowing how to price product portfolios helps you CREATE much more profitable product portfolios.

You see, pricing a portfolio after it has been created is interesting and useful, but building a portfolio around your pricing strategy is powerful.

There are two key pricing strategies to use for portfolios, versions and complements. Versions (also known in economics as substitutes) are multiple products that you expect your customers to choose between. Complements are products that you expect (hope?) your customers will purchase after purchasing another item from you.

One example of versions is first class and coach seats in an airplane. People tend to purchase one or the other, not both. Some people choose the expensive one, some the inexpensive. Creating a set of products with the right versioning strategy can get your customers who aren’t price sensitive to pay you more, while still getting the price sensitive customers to purchase from you.

Examples of complements include razors and blades, printers and ink, movies and popcorn. The strategy here is to have a product your customers use to make a decision and price that aggressively. Then, for the complementary product (blades, ink, popcorns) you charge higher margins because there is less or even no competition. Here we win customers with the decision product (razors, printers, movies) and then make profit with the complementary product. Of course it’s perfectly OK to make profit from the decision product as well.

Pricing product portfolios isn’t about putting prices on a product in a portfolio. Rather, it is really about understanding pricing and using that to create a portfolio that rocks.  When you clearly understand how to price a product portfolio, then you are in a position to create a portfolio that is extremely competitive and captures much more of the value you deliver to your customers.

 

Photo by Tanguy Ortulo