Table of contents:-
- What is Captive Product Pricing?
- Benefits of Captive Product Pricing strategy
- Limitations of Captive Product Pricing
What is Captive Product Pricing?
Captive product pricing is a marketing and profit incremental strategy in which a core product is sold at a cheap price and the important accessories are sold at a high price to support the profit margins.
A very common household example of this strategy is the razor and razor blade example. Razor being the core product is sold at a very low price whereas the blade (and the cream as well) which is the captive product is sold at a higher rate.
Other examples can be of gaming apps which are free to play, but come with a wide range of in-app accessories that can be purchased. The game gets the users hooked and tempts them to buy the additional accessories for better gaming experience.
Captive products are those accessories that make a product complete. A computer will need a printer, joystick, console, etc as accessories. So for pricing, if the core is priced high then it has already lost the fight with competitors that offer the computer with similar features, but at a lower price.
Benefits of Captive Product Pricing strategy
- Lower pricing of the core product invites the customer whereas higher pricing of the captive (accessories) products balance the profit margins.
- As the customer base increases because of low pricing of core products, the sales of captive products also rises up.
- It helps in customer retention and revenue growth.
Limitations of Captive Product Pricing
- Don’t over exploit the captive product advantage by excessively high pricing. This may lead to customer’s disappointment.
- High captive pricing may harm the brand value and image.
- To provide the best quality for accessories.
- The domain of accessories should be vast and ever evolving. Monotonous pairs of core and captive products may lead to decline in sales most probably in the case of games that have in-app purchases.
Q: How does captive product pricing improve sales?
A: Both the core and captive products are to be used as a pair. So when sales of core products increase due to low prices, the sales of captive products also increase.
Q: How is profitability related to captive product pricing?
A: The whole strategy is based on increasing sales and profitability. When a core product is sold at a cheap price, its low profit can be balanced out through the profit margins of the accessories sold at a high price.
Q: Which companies use captive product pricing strategy?
A: Some commonly known companies that use this strategy are Gillete, Apple, Nintendo, EA sports, etc.