Some purchases, like a laptop case or in-flight improvements, can be complemented by future purchases. While it may appear that we require the additional item, it is usually something that will only enhance our experience.
These optional things are frequently priced using a system known as optional product pricing when we acquire them. From electronics merchants to vehicle manufacturers to software companies, the concept is applicable to all sorts and sizes of enterprises.
The idea of this method is that if there are products that appear to be better when purchased with another product, people will be more likely to buy the second product, resulting in increased sales — exactly what businesses desire. Continue reading to learn more about optional product pricing, as well as examples from firms you may be familiar with, and how to use the strategy.
What is Optional Product Pricing?
Optional product pricing is when a company charges a lower price for a base product and a higher price for extra, optional items to compensate for potential losses. Optional items aren’t necessary for the base product to function, but they often improve the consumer experience.
The two main components of the optional product price, as previously stated, are:
- The basic product: A basic product is a major attraction for the buyer or the reason for their purchase. It satisfies the customer’s requirements and does not necessitate the use of an optional product. Loss leaders are also referred to as base items.
- The complimentary product: A complimentary product(s) is a product that a customer who bought the base product is likely to buy to improve their experience with the base product, such as additional software capabilities or adding GPS or satellite radio when buying a car.
This pricing strategy is not to be confused with captive product pricing, which is built on the same principles.
The Difference: Captive Vs Optional Product Pricing
Optional and captive product pricing may appear to be the same price strategy, but the second product a buyer may purchase is fundamentally different. In the first case, the extra product is optional and only serves as a complement to the underlying product. With captive product pricing, on the other hand, the additional product is necessary to make the base product work, therefore customers must buy it, hence the term captive.
For example, a printer requires ink to function (printer ink is a captive product), yet a camera does not require a casing to function (a camera case is an optional product). Let’s look at some real-world instances of optional product pricing from companies you might know.
But, When Should you Use it?
Bundle price is the polar opposite of optional product pricing. Individual features and accessories are sold together for a single price in bundle pricing.
When the extras aren’t required to receive high value from the core product, bundle pricing is the best alternative for a service provider. Bundling add-ons into the base price encourages people to try out tools they might not have tried otherwise, while also covering your development costs for new features. Optional product price, oddly, works best when the product’s accessories aren’t really optional at all.
Examples: Let’s Learn from Market Players
1. Casetify
Casetify is a company that provides phone cases for both Android and iOS devices. Its products are priced using an optional product pricing model, with phone covers as the main product and screen protectors and phone straps as optional products given to buyers in a checkout window (as shown in the image below).
Consumers are not required to buy anything other than the phone case, but the optional item can improve their experience.
2. JetBlue
JetBlue is a low-cost airline based in the United States that follows the optional product pricing model. It sells plane tickets as a base product and add-ons like extra luggage, better seating, and in-flight food and beverages to enhance the flying experience. The cost of adding a second bag to a JetBlue flight is depicted in the figure below.
Oops! What’s the Problem?: Disadvantages
The biggest downside of optional product pricing is that you’ll need a large number of clients to compensate for any losses caused by how you’ve priced your base product. You’ll lose money if you overestimate customer interest or if the optional products don’t actually enhance their experience.
Consumer misunderstanding is another downside of flexible product pricing. Customers may grow upset by higher-than-expected expenses and transfer their business elsewhere if it isn’t evident that your extra products are actually optional to an experience.
The decision to utilize the approach should be based solely on your company’s demands. However, if you have a base product that can be legitimately enhanced or complemented by extra things you sell, it’s worth thinking about because it’s a valuable revenue-generating tool.
Our Take?
Optional product price works well for the products for which it is suited. However, it isn’t applicable to all products. Extra product pricing will always be a gamble until there is no other way for a customer to use your core product without the optional product. A video gaming system is useless without games, and a locked phone is useless without a service contract with the network that gave it to you for free or cheap. These items complement the model perfectly. Airlines make it work because if you don’t pay for their extras, your flight will be terrible, and the alternatives to flying are similarly uncomfortable or slow.
Anyone choosing this pricing strategy should be well aware of the risk they are taking and ensure that the numbers favor them. To put it another way, if you’re going to bet, make sure you’re playing against the house. Casinos do not provide games in which players are more likely to win than lose. You should avoid it as well.
Conclusion
Optional Product Pricing determines product expenses by setting a low price for the product and then profiting from the sale of associated accessories and services. It could be beneficial to both the business and the customers.
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