Pricing strategy is always a tricky subject for business owners. Set them too high, and business will drop, set them too low, and customers will start suspecting low quality products.
There are dozens of different pricing strategies to choose from, each with its own advantages and disadvantages.
Today, we are going to take a more detailed look at one of them – namely, the captive product pricing strategy.
Let’s get started with the captive pricing definition.
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What Is Captive Product Pricing?
Captive product pricing, also called two-part pricing, is a business tactic where the main product is sold along with additional products or accessories that usually go together. This allows you to change the fixed fee, plus a fee for usage.
There are numerous examples of such a pricing strategy. For example, when purchasing a printer, there is typically ink included in the deal, or when you buy a PlayStation, it comes with a few games.
The thing is that these items are of no use on their own – what would you do with a printer, if it doesn’t have ink, and why would you need a gaming console, without any games?
Furthermore, in most cases, the main product is relatively cheap, thus pairing it with an accessory that is much more expensive, makes the entire deal a good bargain.
For instance, a printer is often relatively inexpensive, while the ink cartridges are typically pricey. This means that pairing both in a captive pricing could lead to more sales, since people will see it as a good deal.
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When Does It Make Sense to Use Captive Pricing?
Naturally, it’s not always the best decision to go for a captive pricing strategy. It won’t make sense, for instance, to offer an SD card when selling a razor.
So, when is it appropriate to rely on this tactic? Consider the following:
- Do you have a product that naturally complements another product?
- Is there a separate pricing for the products?
- Have you thought about the client’s response?
Captive pricing can be extremely beneficial to your business, and help you increase sales volumes. The goal is to encourage customers to continue using the core product, while offering other products that either enhance the user experience or are mandatory for the proper use of the main product.
As mentioned, the main requirement is to have a core product, and captive product(s), with the latter being something that is not interchangeable.
Let’s take a look at some examples of captive product pricing.
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Examples of Captive Product Pricing
Here are some of the most famous examples, in a nutshell:
|Main product||Captive product(s)|
|Nespresso coffee machine||Coffee capsules|
|Shaving razor||Razor blades, shaving cream, after shave lotion|
|Freemium subscription (SaaS)||Paid add-ons and features|
Now, let us look at a few more examples, in order to better understand captive pricing.
SaaS Captive Pricing
Software-as-a-Service companies are no stranger to using this business pricing model. Using the freemium model, in particular, where customers can use the service for free, but often end up paying because they want to access a certain feature.
In such a scenario, the user is interested in the service, and wants to use it. While the core functionality of said service is free, the advanced features (captive) require a payment.
The same principle applies for SaaS companies that do not have a free plan. Instead, they typically have a basic plan that provides just the main features, and again, any pro services require an upgrade.
Alternatively, the pricing could be adjusted to adding extra users, or providing more capacity. Here’s an example from Trello.
Video Game Consoles Captive Pricing
Having a console without a joystick, or games, is kind of pointless. That’s why consoles are usually sold in bundles that include a controller, HDMI cable, games, etc.
Xbox, for example, offers their Xbox Series X Bundle along with a wireless controller, high speed HDMI cable, and the game Forza Horizon 5 Premium Edition.
The total price for the bundle is $559.99.
If you take a closer look at the individual items, though, you’ll see that Forza Horizon 5 Premium Edition costs $99.99, an Xbox wireless controller is $59.99. The console itself costs around $499.
Ultimately, you can see how the main product (Xbox console) is boosted by the captive products. This way, users are drawn to purchase, knowing that they are saving money.
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Bonus Tips on Captive Product Pricing
When executed well, a captive product strategy can truly have a lasting impact on your revenue. Here are some bonus tips to help you out:
- Affordable main product price. It’s important to set your main product at an affordable price. This allows you to attract new customers, while increasing your profit with the addition of captive products. What’s more, you will have a higher chance of new customers becoming repeat customers in the future.
- High-quality captive products. Always make sure that the complementary products you offer are of the highest quality possible. If they are not, chances are, users will be less likely to purchase from you, or purchase only once and never do business with you again, due to the low quality you provide.
- Provide more value. Whenever you can, provide as much value as possible to users. Give them extra features, benefits, services, and generally, something that your competitors can’t offer. This will completely justify higher prices and encourage customers to choose your company, even when cheaper options are available.
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You’ve reached the end of today’s article. Well done.
To recap, captive product pricing, although not suitable for all companies, is a great business strategy to increase sales, attract customers, and create a loyal customer base.
Just make sure to execute it properly, and you’ll have a steady flow of customers ready, willing, and able to buy your product and/or service.