Multiple Pricing

What is Multiple Pricing?

Multiple pricing (also called “multiple unit pricing”) is a pricing scheme where a business specifies a total price for multiple units of the same item. A convenience store selling candy bars at “5 for $2.99” would be an example of multiple pricing.

Like other types of psychological pricing, retail and marketing are the most common applications for multiple pricing.

• In the retail industry, multiple pricing incentivizes faster product sell-through and higher purchase volumes by encouraging customers to buy in bulk.
• In marketing, multiple pricing is a common promotional tactic. Marketers can increase their average order value by giving customers a good deal.

This pricing tactic can take numerous forms, though. A company or store might offer a “buy one, get one free” deal (commonly known as BOGO) or something along the lines of “3 items for $5.” In B2B settings, a preset bulk price for X units is commonplace (and usually expected).

Regardless of the exact application, the key here is that the customer perceives value in buying multiple quantities of a product. This could be because they planned on buying more in the future. Or, they may have always preferred to have more but found larger purchases to be too cost-prohibitive.

Synonyms

• Multiple unit pricing
• Multi-unit pricing
• Volume discount
• Price break
• Bundle pricing
• Bulk pricing

Types of Multiple Pricing

Bundle Pricing

Bundle pricing is a form of multiple pricing that creates value for the customer by combining related products or services into one package deal.

Here are a few examples:

• Telecommunications, where customers can get a discounted rate by bundling their cable, internet, and phone services together
• Fast food combo meals
• Vacation packages that include flights and accommodations
• Software bundles that offer various SaaS programs and add-ons at a discounted rate compared to purchasing each one individually

Bundle pricing is not always explicitly “multiple pricing” because product bundles normally have more than one type of item. Still, you can configure a bundle to show that you are giving multiple items for one price, in addition to the other types of value the package offers.

Quantity Discounts

Characteristically, businesses offer quantity discounts (a.k.a. volume discounts or price breaks) at a preset rate for a given quantity. In that sense, pure “multiple pricing” actually aligns a lot more closely with bulk pricing than bundle prices.

For example:

• A stationary supplier may offer a discount of 10% for an order of over 500 pens. The price per unit decreases as the quantity increases.
• A clothing store may offer a discount of $10 for every 3 t-shirts purchased, or 3 t-shirts for $50 when they’re usually $20 a piece.
• A SaaS company may offer a tiered pricing model, where the price per additional user decreases as the number of users in a company increases.
• Telecom providers generally offer better deals for families who add additional lines to a phone plan.

Quantity discounts are common in both B2B and B2C settings.

In a B2B context, the priority is incentivizing product vendors to order more upfront because it improves their profit margins. For B2B companies, the main goal is to get buyers to spend more than they initially would have, either for the sake of getting a good deal or because they planned to replace it in the future.

BOGO (Buy One, Get One) Pricing

BOGO pricing is a special type of quantity discount where customers get one product for free when they purchase a specific quantity. For instance, “Buy One, Get One 50% Off” or “Buy Two, Get One Free.”

This is a backhanded way of saying “two for the price of one” or “buy more, pay less.” And it’s very common in B2C retail and direct-to-consumer online shopping.

Research shows two-thirds of shoppers prefer BOGO to other promos. And 93% have taken advantage of at least one offer like this.

The reason to word multiple unit pricing like this comes back to psychology. Words like “FREE” and “50% OFF” are sometimes more persuasive than a straight discount because it’s more gratifying to receive one item for 100% off than two items, each for half off.

Advantages of Multiple Pricing

Cost Savings for Consumers

For the customer, the ability to purchase multiple items at once for a lower per-unit price effectively translates to “more value for less.” Customers are generally happier with their purchases when they feel like they’re getting a good deal, so multiple pricing can also lead to increased customer satisfaction and loyalty.

Cost Reduction for Businesses

A company’s inventory carrying costs normally total somewhere between 20% and 30% of its total inventory value. With multiple pricing, businesses can sell more products at once, reducing the time it takes to sell through all their products. If lower carrying costs offset the volume discount, moving items off shelves more quickly can actually increase your profit margins.

Increased Sales and Revenue

When customers choose to make a bulk purchase instead of buying just one or two items, the average value of each sale increases significantly. Even if your profit margin takes a hit, the higher sales figures often make up for this. Multiple pricing can also encourage impulse purchases, which drive additional revenue you never would have had otherwise.

Strategic Market Positioning

Multiple pricing is usually an effective market penetration strategy because it draws in new customers who might otherwise be unwilling to try it. It also entices other customers to make larger purchases or engage more with the brand/product (which plays a huge role in expansion). The end result is a more differentiated product that’s more ubiquitous in the market.

Challenges and Considerations

Perception of Value

If your multiple unit pricing doesn’t align with your customers’ price sensitivity and willingness to pay, you’re either leaving money on the table or pushing potential buyers away from your product.

With this type of pricing, there are a few variables that have to fall into place:

• The customer must be willing to buy more than one item
• The price per unit must be less when buying multiple items
• The total price should still fit within their budget

If, say, your product is something customers tend to only purchase once and don’t need to replace (e.g., furniture or a major appliance), it wouldn’t make much sense to offer a bundle or quantity discount. And customers wouldn’t want to spend that much, anyways.

Potential for Confusion

There’s always a chance your customer won’t fully understand your product pricing.

For simple, low-cost physical products like clothing or consumer goods, this isn’t a big issue. It’s easy to look at a package of protein bars, see something like “10 for $10.00 or 1 for $1.99,” and recognize the deal.

This is more of a challenge in supplier-manufacturer deals or personalized deals for services like telecom or healthcare. When you start to get into higher-value products and services with multiple items or components, customers who don’t understand their options mey either lose trust in you or find themselves unable to comprehend the value.

Profit Margins and Sustainability

Pricing psychology demonstrates that a 50% quantity increase generally equals a 33% discount. Companies offering a steep discount risk taking a loss when the overall price reduction outstrips the  sales volume increase (causing you to constantly undermine your own profitability).

In that sense, multiple pricing works best when a company can use economies of scale to its advantage.

There are other options when it comes to promotional pricing:

• Rewards programs
• Loyalty points and coupons
• Package or bundling pricing

While your pricing has to be designed with the customer in mind, you also have to think about what’s sustainable for your business. If there are ways to preserve your profit margins while also boosting sales figures, that’s the ideal outcome.

It’s worth experimenting with different pricing structures to see what resonates best with your audience and helps you achieve your business goals.

Timeliness

Multiple pricing isn’t always good idea, even if it “always” increased sales (which it doesn’t). This is especially true with seasonal products, or products where the time of year influences buying patterns. Selling for less is generally not required when demand for your product is at its peak.

For example, it would make no sense for a swimsuit manufacturer to offer discounted prices on swimwear in June. It also wouldn’t make sense for a company that sells down jackets to launch a BOGO offer in January.

Regulatory Aspects

Before implementing multiple pricing, you have to consider consumer protection laws and pricing regulations.

Consumer Protection Laws

Consumer protection laws are designed to ensure fair trade competition and the free flow of truthful information in the marketplace. They’re meant to prevent companies from engaging in fraudulent or unfair practices.

A good example is New York City’s consumer protection law, which considers multiple pricing a deceptive trade practice unless specific conditions are met. These conditions include:

• Clear communication of the multiple pricing program to both employees and customers, ensuring that items are not offered for sale at more than two prices (except under certain conditions)
• Compliance with advertising and unit pricing regulations
• Use only in retail food stores

The law also requires retail food stores to notify the Department of Consumer Affairs before implementing or terminating a multiple pricing program.

Pricing Regulations

There are also pricing-specific regulations that differ by state and country. They directly impact your ability to offer multiple pricing or effectively implement it in your marketing strategy.

The FTC, along with state attorneys general, regulates how companies advertise the prices of their products. Their regulatory framework is designed to prevent practices that mislead consumers about the true cost or value of a product.

The complexity of these regulations, which vary across states, makes it challenging for companies with national reach to design uniform advertising campaigns without potentially triggering investigations for deceptive pricing in some regions of the country.

Examples of Multiple Unit Pricing

DTC Ecommerce

SunRay Shades, a direct-to-consumer ecommerce brand selling sunglasses, uses a multiple pricing strategy to drive sales once the summer season is over. They offer a deal where a single pair of sunglasses is priced at $50, but if a customer buys two pairs, the total cost is reduced to $80, effectively giving a $10 discount on each pair.

After summer, demand for sunglasses starts to dwindle in many parts of the country, so it makes sense for SunRay to sell their products at a lower margin. Their only other option is to risk high carrying costs from out-of-season designs that won’t sell in a low-demand period.

B2B Manufacturing

OptiCraft Eyewear is the private label manufacturer that produces sunglasses for SunRay Shades and other sunglass brands. The company uses a multiple unit pricing strategy where a batch of 100 sunglasses costs $1,000 ($10 per unit, but if a retailer orders 500 pairs, the total price drops to $4,500, effectively reducing the cost to $9 per unit.

This incentivizes bulk orders, which improve OptiCraft’s sales volume. It also supports their clients like SunRay, which care about maintaining competitive pricing and healthy inventory levels.

Software-as-a-Service (SaaS)

SalesSync, a CRM vendor, uses a multiple pricing model to cater to businesses of different sizes and needs. Their pricing involves offering the basic CRM package at $200 per month for up to 10 users. However, for larger organizations needing more user access, SalesSync offers a scaled pricing model: $1,800 per month for up to 100 users.

Tiered pricing not only makes the CRM solution more accessible to smaller businesses but also encourages larger enterprises to adopt the system across their organization. From both angles, it drives up SalesSync’s overall revenue and client base diversification.

Future Trends and Innovations

Technology Integration

As AI for sales becomes more and more advanced, we’re seeing its ability to optimize and update prices in real time. In industries like aviation and hospitality, prices fluctuate in real time based on factors like demand and seasonality. In these cases, a multiple pricing model would be less effective than dynamic pricing that changes by the minute or hour.

Even in B2C ecommerce, companies can use machine learning to run experiments and adjust prices according to customer preferences and buying patterns. This can be done through personalized pricing based on factors like previous purchase history, browsing behavior, and geographic location.

Subscription-Based Services

Since subscribers pay on a recurring basis, companies using a subscription business model have an added degree of complexity when it comes to quoting and billing customers. Modern configure, price, quote (CPQ) and subscription management solutions (like DealHub) help businesses automate pricing and billing processes with usage-based billing and renewal management.

Personalization

With more accurate and descriptive customer data from advanced analytics tools, businesses can implement multiple pricing models and tailor them to individual customer profiles. In addition to expanding their market reach, this helps companies increase customer retention and differentiate themselves in their marketplace.

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