What is captive product pricing?
Captive Product Pricing (CPP) is a pricing strategy used for products that have a core product and require accessory/captive products to function. It takes advantage of the main product, which is essential, to attract more customers. So the core product is priced more inexpensively on the one hand. On the other hand, the accessory products are given higher price rates to make up for the low prices of the principal item in question.
Because the core product is sold at a lower price, customers are attracted to it. However, since it performs little to no function on its own, customers are obliged to acquire the more expensive accessories to use the main product effectively.
This pricing strategy is part of product line pricing, which involves separating goods into cost categories to create several perceived quality levels in the customers’ minds. Moreover, it’s seen more in physical products, though some service providers have begun to adopt it.
Factors of Captive Product Pricing
As mentioned earlier, Captive Product Pricing is twofold. Let’s go over the components.
The Core Product
The core product is priced more affordably than the accessory product, even though it is only bought once. Companies set the core product management and price according to demand and production costs.
Captive/accessory products are meant to enhance the core product. Without them, the core product is of little to no value. This is why they are priced higher than the main product. Furthermore, accessory products are purchased repeatedly to keep adding lifetime value to the core product.
Exemplifications Of Captive Product Pricing
Physical products with accessories and consumables are the most famous examples of captive product pricing. You may have seen some of these products on sale or even bought them without realizing the pricing. These include; a coffee maker and coffee pods, mobile phones and subscription plans, game consoles and joysticks, and printer and ink cartridges.
Let’s take the example of mobile phones and subscription plans. The phone itself is the core product, while its wireless subscription plan is the captive product. Additionally, other items are created to increase functionality, i.e., phone cases and earbuds. The purpose of this pricing is to encourage customers to purchase core products, and since customers can’t use them alone, they have to buy accessory products at higher prices.
What To Keep in Mind When Using CPP
When implementing Captive Product Pricing, businesses must consider the requirements of their customers and their spending power. This can be achieved when marketing teams to research and find out what types of products customers fancy for customer feedback and if the accessory products are essential to those products.
They should also establish and maintain a healthy balance between their pricing points and avoid pricing their products in a way that customers can’t afford. Overpricing a captive product could harm the sale of the whole creation and may result in losses.