Glance at a grocery store aisle, and you’ll notice that whitening toothpaste is a dollar more than the regular minty fresh. Head to the online pricing page of a task management app, and you might see three different pricing tiers: basic, professional, and enterprise.
These are all examples of price lining, in which businesses strategically offer products or services at different price points to cater to various market segments. Read on to learn the pros and cons of price lining and how to successfully implement it in your business.
What is price lining?
Price lining is a marketing and pricing strategy that offers multiple versions of related products or services at different price points. Companies use price lining to create distinct offerings, each tailored to different customer segments and priced accordingly. This pricing strategy helps businesses increase sales and capture market share by appealing to customers with different price sensitivities and requirements.
For example, a hotel chain might offer inexpensive rooms with basic amenities under one brand name, while providing luxury suites with valet parking and exclusive lounge access under a separate premium brand. Similarly, an appliance manufacturer could sell a basic refrigerator with a simple temperature control for one price, alongside a premium model featuring an ice dispenser and touch screen for a higher price.
Advantages of price lining
It’s not uncommon for a company to start with a flagship product and then eventually introduce different tiers. Here’s why companies embrace this approach:
Expanded customer base
Brands that adopt price lining can serve different customer segments simultaneously. This market segmentation tactic lets businesses tailor their offerings to specific customer needs and willingness to pay. A fitness equipment brand might offer professional-grade treadmills for gyms, mid-range models for at-home exercise enthusiasts, and compact, foldable versions for apartment dwellers with limited space. Each price line is designed to increase market reach, boost sales, and broaden brand recognition.
Diversified consumer options
Different consumers have different needs; it makes sense to explore various pricing strategies. Consider a coffee maker brand: baby boomers might prioritize simplicity and durability, millennials might seek programmable features and sleek design, while Gen Z might be drawn to smart connectivity and eco-friendly options. Offering all these provides consumers with more choices, giving them what they want versus simply what’s available.
Built-in upgrade pathway
Price lining creates a natural progression for customers. For example, someone learning to snowboard for the first time might buy an inexpensive, entry-level snowboard from your company. As they learn to love the sport—and go from novice to expert—they might graduate to a more expensive, advanced board with premium features. This encourages customer loyalty, keeping them within your brand family as their needs evolve instead of having them turn to an up-market competitor.
Disadvantages of price lining
Price lining, while effective for capturing different market segments, has potential risks and pitfalls. Here are some cons to consider:
Potential for cannibalization
As a pricing strategy, price lining may lead to internal competition in your own product range. Customers who might have purchased your higher price point items may opt for your lower price option, reducing your revenue and profit margins. For instance, a luxury watch brand that introduces a more affordable line might see some customers choose the less expensive option instead of saving up for the premium model.
This is especially true when market dynamics change, like during an economic downturn. Consumers often become more price sensitive and tend to switch to cheaper options, making price lining less effective.
Risk of brand dilution
When a high-end fashion label launches a low-cost line, it might reduce the allure of its premium offerings. Calvin Klein faced this challenge when it licensed its brand to discounters in the 1990s and early 2000s, leading to a temporary decline in its luxury image. To mitigate this risk, companies might make a clear separation between lines, even adopting different brand names (e.g., Toyota and Lexus) for distinct market segments.
Additional operational complexity
A single flagship product makes it easier for your company to control its logistics. However, introducing new products with different requirements can bring challenges. A furniture company that typically ships flat-pack, self-assembly bookcases might face challenges when introducing a premium line of fully assembled bookcases. This shift might require new warehouse space, different handling procedures, additional quality-control measures, and different packaging to ensure the high-end products arrive undamaged.
An example of price lining
Donna Karan New York was established in 1984 by designer Donna Karan, who sought to create sophisticated clothing for professional women. The original Donna Karan New York line quickly gained recognition for its high-end designs catering to affluent and fashion-forward shoppers.
In 1989, Karan launched DKNY as a more affordable and youthful line. This strategic move let the company target a broader market without risking brand dilution.
The company uses separate ecommerce websites for Donna Karan New York and DKNY, further distinguishing the two lines for customers. This approach helps maintain the prestige of the high-end line for luxury-seeking consumers while offering a more accessible brand to customers with tighter budgets.
Tips for a successful price lining strategy
- Make your offerings distinct
- Tailor your go-to-market strategies
- Use technology to manage operations
When price lining goes wrong, customers may feel confused or deceived, unable to discern meaningful differences between products and price tiers. However, when properly executed, price lining creates a clear hierarchy of perceived value. Here are some price lining strategies to set up your brand for success:
Make your offerings distinct
Consumers are smart. They’re generally not going to pay different prices for the same product with meaningless cosmetic variations. Ensure the items in your product line are distinct enough to justify the price differences.
For instance, a vacuum brand might offer two different products with two different price lines: a basic corded model for everyday cleaning and a high-end robotic vacuum with smart mapping and self-emptying capabilities.
However, this doesn’t mean that one product should be low quality and the other premium quality. This sets you up to fail, with low-quality products leading to brand dilution of your high-end products. They should all be functional and deliver on their promise, no matter the price point.
Tailor your go-to-market strategies
Products targeting different market segments typically need different approaches to sales and marketing. If one of your kitchen mixer lines is for business-to-business (B2B), and sold at a higher price point, you might need a sales system that involves lead generation. You can also explore trade show exhibitions and have direct sales teams target institutional and restaurant kitchens.
If the other mixer line is for business-to-consumer (B2C), you might focus on optimizing your ecommerce store. You could also explore social selling and partner with Instagram chefs and YouTubers for influencer marketing campaigns.
Use technology to manage operations
One of the hardest parts of price lining is logistics. For a fragrance line, your premium eau de parfum in delicate glass bottles requires careful handling, unlike your mid-tier body sprays in durable plastic. And that’s just one example. You’re likely to have differing requirements across product tiers that can complicate inventory management, storage, and shipping.
Here are some technologies to consider:
- Omnichannel ecommerce platform. An omnichannel ecommerce platform unifies disparate sales channels, providing a centralized view of all transactions, stock levels, and customer interactions, regardless of where the sale occurs.
- Unified inventory system. With price lining, you’re likely dealing with components that may be shared across product lines and unique parts for each tier. A unified system can help you track these intricate inventory details.
- Warehouse management system (WMS). When you have multiple product lines, efficient storage and picking become more complex. A WMS can help manage different storage needs, optimizing space usage by designating specific warehouse areas and streamlining picking routes based on each product line’s qualities.
- Transportation management system (TMS). Different product tiers may have different shipping requirements. A TMS can help you manage these differences, optimize routes, and provide real-time tracking for your luxury-tier customers who expect premium service from purchase to delivery.
By exploring these technologies, or configuring your existing systems to match your new needs, you can make price lining work for your business.
Price lining FAQ
What is the meaning of “price lining”?
Price lining is a marketing strategy where companies offer different versions of a product or service at distinct price points to appeal to various customer segments and boost market reach.
Is price lining illegal?
No. Opting for product line pricing is not illegal when implemented ethically and transparently, but it can become a legal problem if used to deceive consumers.
What are the cons of price lining?
The potential cons of price lining include the risk of cannibalizing sales of higher-priced items, diluting your brand, and mismanaging new operational complexities.
