Captive product pricing happens when a business such as Springfield towing company prices goods and services based on the core product – the actual functioning product, as well as additional accessories, that are necessary for the core product to work. The core product is bought once the accessories are purchased over and over again, or as it is deemed necessary. Companies will typically price core products at a loss and attempt to make up the difference by pricing the captive product at a higher price. Added value can come from being the only business that sells the additional required accessory, as this guarantees more business from customers who purchased the core product.
The good thing about captive pricing is that it can boost sales and lead to increase profit margins. Having accessories required for core product function is a sure way to inspire customer loyalty, especially if they feel like the expense is worth it. Captive pricing comes with its considerations. Deciding to use this model from being fuelled by having a natural and complementary product and accessory. You should never opt to do this if the products you have are not related, as doing so could be seen as grabbing money from your customers as that is an unethical practice. Additionally, consider pricing your products separately. Many businesses underprice core products and overprice captive products to make up for the loss. While this can be considered, they should be priced separately based on their worth.
Focus on Customers
Customers are the key deciding factor when it comes to captive pricing. You should price your products with your customers in mind, and sell with them in mind as well. Ensure the products you sell provides a lot of value to your customers. They should not be enraged because you have provided outrageous prices. For anything you do, avoid being flagged for unethical practices. For captive pricing, there are many examples we can learn from, and use these models and a basis for setting pricing for customers.
Video Games Console
A good example is video game consoles, as they provide a good example for captive product pricing. The core product is the gaming console such as Xbox. It may be nice to have this gadget but can prove worthless if it doesn’t come with its accessories. This means the captive products are the controllers, games as well as any additional accessories that make having an Xbox worth it. Creators of video game consoles are also capitalizing on any additional benefit of captive product pricing. Such companies benefit a lot from having customers purchase multiple consoles to play their favorite games that are not compatible with their favorite device.
Another good example we can look at is the car industry. For car manufacturers, they attempt to capture the market with captive product pricing. The core product is the purchase of a car, and the captive product is any replacement parts or additional accessories such as GPS tools, that are required to keep the car running or improve on user experience.