What is captive product pricing?
Captive product pricing is a strategy that involves selling a core product at a lower price and then making a profit on the additional products or services that are essential for the customer to fully utilize the core product. This strategy essentially “captures” the customer and ensures ongoing revenue through the sale of complementary products or services.
Examples of captive product pricing
Bruvi
Bruvi, a company that sells coffee makers, offers their coffee makers at a competitive price, but makes a profit on the sale of their proprietary coffee pods, which are essential for using the coffee maker.
Hydrow
Hydrow, a company that sells rowing machines, offers their machines at a lower price but makes a profit through their subscription-based content platform, which is essential for users to fully utilize the machine.
SodaStream
SodaStream offers their soda makers at a lower price, but makes a profit on the sale of their carbonation canisters, which are essential for creating carbonated beverages at home.
Benefits of captive product pricing
Regular revenue
By selling a core product at a lower price and making a profit on the essential complementary products, businesses can ensure a steady stream of revenue from ongoing sales of the additional products or services.
Increased customer retention
Customers who have invested in the core product are more likely to continue purchasing the essential complementary products or services, leading to increased customer retention and loyalty.
Enhanced functionality
Captive product pricing can enhance the functionality of the core product, as customers are more likely to invest in the additional products or services that improve their overall experience with the core product.
Tips for implementing captive product pricing
Conduct market research
Before implementing captive product pricing, it’s important to conduct thorough market research to understand customer needs and preferences, as well as the potential demand for the additional products or services.
Run the numbers carefully
It’s essential to carefully calculate the pricing and profit margins for both the core product and the complementary products or services to ensure that the strategy is financially viable and profitable for the business.
Get creative with bundling
Offering bundled packages that include the core product and the essential complementary products or services can be an effective way to encourage customers to make a larger initial purchase and ensure ongoing sales of the additional products or services.
What is captive product pricing FAQ
What brands use captive product pricing?
Many brands in various industries use captive product pricing, including companies that sell hardware with subscription-based software, consumable products with proprietary accessories, and more.
What are the disadvantages of captive product pricing?
While captive product pricing can lead to regular revenue and increased customer retention, it can also be perceived as a potentially manipulative pricing strategy by some customers, leading to negative brand perception.
When should you use captive product pricing?
Captive product pricing is most effective when the additional products or services are essential for the customer to fully utilize the core product, and when there is a clear demand for the complementary products or services among the target market.