Most businesses have a set price for their products or services. But some companies use optional pricing. This means customers can choose to pay different fees for different features.
For example, a business might offer an essential product for a cheaper price. And then provide optional products to recuperate the lost income.
Optional pricing helps to increase revenue, as customers who value certain features might pay more for them. In this article, we'll explore the concept of optional pricing in more detail, including some examples and benefits of this pricing strategy.
Optional pricing definition
The optional product pricing model refers to the practice of selling the primary product at a lower price to attract customer demand. And then charging a higher price for the accessories that go with the main product.
The optional pricing strategy allows customers to pick and choose which add-ons they want to buy. This type of pricing is common in the software industry. Companies offer a basic product for a lower price and then charge more for premium features.
Optional pricing can be beneficial for companies because it allows them to increase their revenue without raising the price of the main product. This type of pricing can encourage customers to buy more expensive add-ons.
Understanding how optional product pricing strategy works
To understand how this pricing method works, let's take a look at some key factors:
- Acquiring buyers by offering low prices
- The same company sells complementary accessories to increase revenue
- Creating value for customers
- Creating a USP (unique selling proposition)
Each of these factors plays an important role in the optional pricing strategy.
It starts with acquiring buyers by offering low prices. This encourages more people to buy your product.
Once you have a customer base, you can increase revenue by up-selling them on extra features. This is where optional pricing comes in. By offering optional pricing, you give customers a chance to buy more expensive add-ons.
It's important to create value for customers with this pricing strategy. If customers don't see the value in the add-ons, they won't be willing to pay extra for them. That's why it's important to offer features that customers will find helpful.
Finally, you need to have a USP (unique selling proposition). This is what sets your product apart from the competition. If you don't have a USP, customers will be less likely to buy your product. And even if it's priced lower than the competition.
What is an example of optional pricing?
Example 1: Software industry
For instance, Adobe offers a basic version of Photoshop for $9.99/month. And then, they charge $19.99/month for the premium version that includes more features.
Example 2: Airline industry
Another example of optional pricing would be budget airlines (Ryanair) offers the basic core product, in this case, a seat on a flight for a relatively low price, but offers costly add-ons (e.g., checked baggage, airport check-in, no-show fees)
What are the benefits of optional product pricing?
So now that we know what an optional product pricing strategy is, let's take a look at some of its benefits
1. It allows companies to increase revenue without raising prices
As we mentioned, optional pricing allows companies to increase revenue without raising prices. This is because customers have the option to buy more features for an extra cost.
This way, companies can attract more customers with a lower price. And then make more money by up-selling them on more features.
2. Lower risks
Even if a customer doesn't want to buy the extra features, they've still purchased the main product. Yet, it's important to set the initial pricing high enough to cover the cost of producing the main product.
3. It's a good marketing strategy
People like things when the prices are low. It's a fact of human nature. So, by offering a low price on the main product, you can create curiosity in them and make them buy your product.
4. It allows customers to pay for only what they need
Some customers might not need all the bells and whistles that come with a premium product. By offering an optional pricing strategy, you let customers choose what features they want. Customers who don't have to pay unnecessary costs will be more likely to buy your product.
5. It's flexible
Optional pricing is a very flexible pricing strategy. Because companies can offer different combinations of products and services at different prices, this way, you can cater to the needs of a wide range of customers.
So there you have it! Everything you need to know about optional pricing strategy. Now you have a better understanding of how an optional pricing strategy works. If you're thinking of implementing an optional pricing strategy, make sure to do your research and understand how it can help you.