Optional Extra Pricing

Description

Have a product that is fairly basic, then charge extra for additional items that extend the base product in some way.

You can also sell products that may be sold separately together as a 'solution' to a specific need. Extensions may be added to this to achieve further functionality, for example in business software that adds specialist tax modules, alumni management modules and so on.

Optional extras need not be sold at the time of original purchase and so may be offered at a future date.

Example

A computer seller prices a basic computer in a way that seems very competitor. They then recommend various upgrades, including memory, mass storage and graphics systems.

A garden goods company sells a greenhouse at a fair price. The extras, such as staging, irrigation and so on are not that good value.

A hi-fi shop puts together complete 'systems' with choices as to which speakers, amplifier, etc. are used.

Discussion

When customers see the base price for the item, they may mentally close on this, deciding to buy. They may then realize that they need extra items or it would be better to upgrade the item bought.

The base product is likely to be the most expensive item. The price of each optional extra will not seem as high in contrast with this, although the total price can quickly increase by an overall significant amount.

Extensions to a product that are not included in the initial sale are often helpful for sales people as this gives them reason to make further sales calls and offer additional aspects that only they can provide.

Even if customers never buy the extras, the fact that they can be bought later gives the customer confidence that what they are buying will not go out of date that soon. Future-proofing can be helped with common interfaces that survive improvements in the base product, allowing 'plug compatibility' for a significant number of years and models. It can be a difficult decision to use 'open' standards so other companies can sell extensions to your customers, yet this can provide you with significant market advantage.

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Optional Extra Pricing

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Disciplines

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Explanations

Theories

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