Companies usually develop product lines rather than single products. In product line pricing, management must determine the price steps to set between the various products in a line. The price steps should take into account cost differences between products in the line. More important, they should account for differences in customer perceptions of the value of different features.

For example, Quicken offers an entire line of financial management software, ­including Starter, Deluxe, Premier, Home & Business, and Rental Property Manager versions priced at $29.99, $64.99, $94.99, $104.99, and $154.99, respectively. Although it costs Quicken no more to produce the Premier version than the Starter version, many buyers happily pay more to obtain additional Premier features, such as financial-planning, retirement, and investment-monitoring tools. Quicken’s task is to establish perceived value differences that support the price differences.

Many companies use optional-product pricing—pricing optional or accessory products along with the main product. For example, a car buyer may choose to order a navigation system and premium entertainment system. Refrigerators come with optional ice makers. And when you order a new laptop, you can select from a bewildering array of processors, hard drives, docking systems, software options, and service plans. Pricing these options is a sticky problem. Companies must decide which items to include in the base price and which to offer as options.

Companies that make products that must be used along with a main product are using captive-product pricing. Examples of captive products are razor blade cartridges, video games, printer cartridges, single-serve coffee pods, and e-books. Producers of the main products (razors, video-game consoles, printers, single-cup coffee brewing systems, and tablet computers) often price them low and set high markups on the supplies. For example, Amazon makes little or no profit on its Kindle readers and tablets. It hopes to more than make up for thin margins through sales of digital books, music, movies, subscription services, and other content for the devices. “We want to make money when people use our devices, not when they buy our devices,” declares Amazon CEO Jeff Bezos.4

Captive products can account for a ­substantial portion of a brand’s sales and ­profits. For example, only a relatively small percentage of Keurig’s revenues come from the sale of its ­single-cup brewing systems. The bulk of the brand’s ­revenues—nearly 77 percent—comes from captive sales of its K-Cup portion packs.5 However, companies that use captive-product pricing must be careful. Finding the right balance between the main-product and captive-product prices can be tricky. Even more, consumers trapped into buying expensive captive products may come to resent the brand that ensnared them.

For example, some customers of single-cup coffee brewing systems may cringe at what they must pay for those handy little coffee portion packs. Although they might seem like a bargain when compared on a cost-per-cup basis versus Starbucks, the pods’ prices can seem like highway robbery when broken down by the pound. One investigator calculated the cost of pod coffee at a shocking $50 per pound.6 At those prices, you’d be better off cost-wise brewing a big pot of premium coffee and pouring out the unused portion. For many buyers, the convenience and selection offered by single-cup brewing systems outweigh the extra costs. However, such captive-product costs might make others avoid buying the device in the first place or cause discomfort during use after purchase.

In the case of services, captive-product pricing is called two-part pricing. The price of the service is broken into a fixed fee plus a variable usage rate. Thus, at Six Flags and other amusement parks, you pay a daily ticket or season pass charge plus additional fees for food and other in-park features.

Producing products and services often generates by-products. If the by-products have no value and if getting rid of them is costly, this will affect the pricing of the main product. Using by-product pricing, the company seeks a market for these by-products to help offset the costs of disposing of them and help make the price of the main product more competitive.

The by-products themselves can even turn out to be profitable—turning trash into cash. For example, cheese makers in Wisconsin have discovered a use for their leftover brine, a salt solution used in the cheese-making process. Instead of paying to have it disposed of, they now sell it to local city and county highway departments, which use it in conjunction with salt to melt icy roads. It doesn’t stop there. In New Jersey, pickle makers sell their leftover brine for similar uses. In Tennessee, distilleries sell off potato juice, a by-product of vodka distillation. And on many highways across the nation, highway crews use a product called Beet Heet, which is made from—you guessed it—beet juice brine by-products. The only side effect of these brine solutions is a slight odor. Says one highway department official about cheese brine, “If you were behind a snow plow, you’d immediately smell it.”7

Using product bundle pricing, sellers often combine several products and offer the bundle at a reduced price. For example, fast-food restaurants bundle a burger, fries, and a soft drink at a “combo” price. Microsoft Office is sold as a bundle of computer software, including Word, Excel, PowerPoint, and Outlook. And Comcast, AT&T, Verizon, and other telecommunications companies bundle TV service, phone service, and high-speed internet connections at a low combined price. Price bundling can promote the sales of products consumers might not otherwise buy, but the combined price must be low enough to get them to buy the bundle.