Consider having an Xbox without games or a camera without film. It doesn’t make sense unless you’re a collector. You may own both of the products, but if you spent a lot of money on them, you’ll want to make the most of them. Because the firms you buy from understand that you’ll need both the film and the games to use these goods, they sell the primary product, the Xbox or film camera, separately from the auxiliary product, games, or camera film, to encourage more sales.
You may not have given it much attention, but this is due to a pricing tactic known as captive product pricing, which is used by firms. This method is applicable to both SaaS and entertainment enterprises (think going to Disney with a standard ticket and upgrading to a Fast Pass). They know you’ll want to buy a Fast Pass to enhance your Disney experience, so they offer it separately from the normal, baseline ticket to generate extra income.
Captive product pricing is used by corporations to assist them to generate sales, as previously stated. Customers are almost certain to buy more from them if they sell a product that requires additional accessories. This article will explain captive product pricing, outline common considerations for applying the model, and provide real-life examples of products that fit into this category that you might utilize.
What is Captive Product Pricing?
When a business prices goods and services, it does so based on a core product (the actual working product) and additional accessories (the captive product) that are required for the core product to function. The main product is purchased only once, but the accessories are purchased on a regular basis or as needed.
Companies usually price core items at a loss and try to make up the difference by charging more for additional products and accessories. Being the only firm that sells the additional essential accessory can add value because you’ll get more business from clients who buy your main product.
Without an explanation, it may be difficult to follow this, so let’s look at an example. In order for a printer to function, it requires ink. There’s no reason to purchase a printer solely for the purpose of purchasing a printer. The accessory, also known as the captive product, is the ink required to utilize and provide meaning to the core product. As a result, when a consumer buys a printer, they also buy ink (the accessory) because they know the printer won’t work without it.
Captive product pricing can help you raise sales and profit margins. Accessories that are essential for core product function are a surefire method to encourage consumer loyalty, especially if the cost is justified.
Keep This in Mind: Pricing Consideration
There are a few things to consider if you decide to price your products in this manner. The decision to employ this model should be based on the availability of a natural, complementary product or accessory. If the items aren’t necessarily linked, you shouldn’t do it because it could be perceived as a money grab by your clients and is also immoral.
It’s also a good idea to price your products separately. To make up for a loss, many businesses underprice core products and overprice captive products. While this should be taken into account, they should be priced separately according to their value.
Finally, in this case, customers are the most important component. You should set your prices and sell your items with them in mind. Your items should still be valuable to them, but they shouldn’t be prohibitively expensive. As previously said, you do not want to be accused of unethical behavior.
Captive Product Pricing: Learn from Examples
We hadn’t given much attention as to how many of our products employed this concept, but it turns out that a lot of them do. Let’s look at some instances of products and services that use the captive product pricing model that you might be familiar with.
1. Cars
The attempt to corner the market with captive product pricing is more challenging for vehicle makers than for other industries, but they’re still a good example. The captive product is any replacement parts or other equipment (such as GPS tools) that are required to maintain the car’s functioning or improve the user experience.
Automobiles are more difficult to corner since consumers can often acquire parts from third-party dealers. Many businesses, on the other hand, discourage clients from doing so by giving free services in exchange for items purchased and installed by their specialists.
2. Saas Software
The captive-product concept was also used in SaaS applications. Businesses frequently offer consumers basic tiers (core product) and charge for additional add-on features (captive product), such as upgrading to a higher business tier or paying for specific tools.
3. Mobiles
While you can buy a gadget with cellular capabilities and use it without them, there is no need to spend additional money on a device just for that purpose. The fundamental product is a cell phone, whereas the wireless plan is a captive product. Without a wireless plan, a mobile phone isn’t a cell phone.
Captive items can also be supplementary accessories purchased from a manufacturer or provider in this situation. Apple, for example, has ceased offering wall adapters with their phones, necessitating additional purchases from consumers who don’t already have one.
Conclusion
If your company sells items or services that benefit from the inclusion of other products, you should think about employing the captive product pricing model. Captive product pricing, when done correctly, may improve sales and establish a network of devoted customers who are ready and eager to buy accessories to enhance their experiences with your items.
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