Nonlinear pricing can be used as a broad term to offer discount schemes where different pricing bundles offer higher total revenue for the seller with a lower per unit price for the buyer.
It is a broad term that’s used to discount schemes where different price bundles offer higher total revenue with a lower per-unit price for the buyer. In layman terms, the seller benefits from customers buying more of his products while the customers benefit from getting the goods at a reduced price.
As sellers usually benefit from selling more of a specific product -even at a reduced price, this is pretty much a win-win situation where both the seller and the buyer get something they want.
A good example where nonlinear pricing is used is plus-size meals at restaurants. When you buy one of these plus-size meals, you save money compared to buying the same quantity with regular meals.
In most cases, customers won’t consider buying more from whatever they’re buying if this pricing strategy wasn’t used. This makes the nonlinear pricing strategy exceptional good at increasing sales volume.
When properly used, a nonlinear pricing strategy can dramatically boost sales. However, to make the most of this pricing strategy, there are a few things that you should keep in mind.
By doing so, you’ll be able to make the most out of it while avoiding the downsides.
The Suitability of the Nonlinear Pricing Strategy for Your Business
Despite being a great way to boost sales, nonlinear pricing isn’t right for all businesses. While it can provide exceptionally good results for some businesses, it can be totally unsuitable for others.
The reason for this is quite simple, which is the fact that not all businesses benefit that much from selling more at lower prices. That’s why you need to carefully analyze your profit margins to make sure that nonlinear pricing is something that you want to do.
Asides from the profit margins and whether the nonlinear pricing strategy will be profitable for your business or not, your brand image is another thing that you must keep in mind. In case of high-end brands that charge top dollar for their services, being able to “get more for less” is a message they don’t want to be sending to people.
Before you decide on using nonlinear pricing, always asses all the pros and cons to make sure it’s the right choice for your business.
The Long-term Impact of Using Nonlinear Pricing on Your Business
Another thing you should consider before using a nonlinear pricing strategy is the long-term impact it can have on your business. If you use this pricing strategy for a long period of time, it can change your business model for the best.
For example, let’s say that you own a fast food restaurant. After calculating the cost, you decide that you can offer a free Coke with any of your special extra-large french fries. As a result, many people who buy food from your restaurant start choosing this offer as they perceive it as a great value for money.
By selling much more French fries than you used to, you can negotiate for a better price with your potato supplier. This will allow you to have better profit margins for your French fries and make more money or even come up with more tempting offers to capture a bigger market share.
Having the big picture in mind before you start applying a nonlinear pricing strategycan help you benefit in ways you didn’t know were possible.
Nonlinear Pricing: Advantages and Disadvantages
Nonlinear pricing has its own unique advantages and disadvantages. Whether you should use this pricing strategy or not depends on your business. If the pros outweigh the cons, then this strategy is right for you. If not, there are other pricing strategies out there that are a better match for your needs.
Selling More of Your Products
As you already know, getting more for less is something that people can hardly resist. When you use a nonlinear pricing strategy, people are tempted to buy more of your products to make the most out your offers.
If your business benefits from selling more items, this is an advantage that makes this strategy worth considering.
Making Your Products Look Cheap
One major downside of using a nonlinear pricing strategy is that it makes your products look cheap. Imagine a company like Apple offering two iPhones with a 10% discount, or a fancy restaurant offering a discount on target portions.
If that happens, you’ll never see these products as “fancy”. Whether this is a big deal for you or not depends on the products that you’re selling. If your brand image is more important in the long term than selling more of your products, this is a pricing strategy that you want to stay away from.