Product cross-subsidization definition

What is product cross-subsidization?

What are examples of product cross-subsidization?

• An airline offering low prices for economy class tickets and then using the revenue from those tickets to subsidize the price of business class and first class tickets.

• A mobile phone company offering low prices for basic phone plans and then using the revenue from those plans to subsidize the price of more expensive plans with more data and features.

• A cable TV company offering low prices for basic cable packages and then using the revenue from those packages to subsidize the price of premium channels and sports packages.

• A grocery store offering low prices for generic brands and then using the revenue from those products to subsidize the price of more expensive name-brand products.

• A hotel offering low prices for standard rooms and then using the revenue from those rooms to subsidize the price of more expensive suites and luxury rooms.

How to create a product cross-subsidization strategy?

• Identify the products that you want to cross-subsidize: The first step in creating a product cross-subsidization strategy is to identify the products that you want to cross-subsidize. This might include a popular and profitable product that you want to subsidize the price of a less popular or less profitable product.

• Determine the target customer groups for each product: Once you have identified the products that you want to cross-subsidize, you should determine the target customer groups for each product. This will help you to understand the specific needs and preferences of your customers, and to tailor your pricing and marketing efforts accordingly.

• Set the prices for each product: Based on the target customer groups for each product, you can then set the prices for each product. The goal of product cross-subsidization is to make one product more competitive in the market, so you should set the price of that product at a level that is competitive with other similar products in the market.

• Develop a marketing plan: Once you have set the prices for each product, you can develop a marketing plan that outlines the specific actions and tactics that you will use to promote your products to your target customer groups. This plan should include details about the channels and platforms that you will use, the messaging and content that you will use, and the metrics that you will track to measure the success of your efforts.

• Implement and test your product cross-subsidization strategy: Once you have developed your marketing plan, you can begin implementing your product cross-subsidization strategy. This can involve launching marketing campaigns, promoting your products to your target customer groups, and tracking the results of your efforts. You should also test your strategy and make adjustments as needed based on the results of your testing.

Why would a brand do product cross-subsidization?

• To make a product more competitive in the market: By cross-subsidizing the price of a product, a brand can make that product more competitive in the market. This can help the brand to attract more customers and to increase its market share.

• To make a product more affordable for certain customer groups: Product cross-subsidization can also be used to make a product more affordable for certain customer groups. For example, a brand might cross-subsidize the price of a product in order to make it more affordable for low-income customers.

• To support the development of new products: Product cross-subsidization can also be used to support the development of new products. For example, a brand might cross-subsidize the price of a new product in order to help it gain traction in the market and to generate revenue that can be used to support further product development.

• To manage the cost of providing rewards and incentives: Product cross-subsidization can also be used as a way to manage the cost of providing rewards and incentives to customers. For example, a brand might cross-subsidize the price of one product in order to provide rewards and incentives to customers who purchase other products.