In case you’re pondering of fixing up your pricing technique, captive product pricing is a technique you need to contemplate.
The idea of captive product pricing is easy. For instance, think about proudly owning an Xbox with out video games. Except you simply take pleasure in accumulating consoles, it doesn’t make sense to personal the console with out video games. Firms, like Microsoft, know you want each the console and video games to make the product work. So, to extend gross sales, they promote the core product (on this case, the Xbox) individually from the equipment (ie. the video games).
This technique could be related to SaaS companies, too. With this pricing mannequin, you’re nearly assured to have the identical prospects make extra purchases. On this submit, you’ll study the advantages of captive product pricing and the right way to make it work for your online business.
What’s captive product pricing?
Captive Product Pricing Issues
Captive Product Pricing Examples
The best way to Use Captive Product Pricing to Enhance Gross sales
What’s captive product pricing?
Captive product pricing is a technique companies use to promote a core product and extra equipment. The captive product is the extra equipment, whether or not it’s a bodily product that’s wanted to make the core product operate or an add-on.
Sometimes, the core product is bought by the shopper solely as soon as, however the equipment are bought as essential — generally again and again. Firms usually worth core merchandise at a loss and try and make up the distinction by pricing the captive merchandise and equipment at a better price.
Added worth can come from being the one enterprise that sells the extra required accent, as you’re assured extra enterprise from prospects who buy your core product.
An instance of captive productive pricing is a printer and its required ink. There’s actually no motive to purchase the printer simply to purchase the printer. The accent, or the captive product, is the ink required to make use of the core product and provides it that means. On this instance, a client buys the printer and instantly buys ink (the accent) as a result of they realize it received’t operate with out it.
Captive product pricing can increase gross sales and enhance revenue margins. Having equipment required for core product features is a surefire approach to encourage buyer loyalty, particularly in the event that they really feel just like the expense is value it.
Captive Product Pricing Issues
There are just a few concerns to bear in mind for those who select to make use of a captive product pricing technique.
Deciding to make use of this mannequin ought to stem from having a pure, complementary product and accent. You shouldn’t choose to do that if the merchandise aren’t essentially associated, as this could possibly be seen as a cash seize in your prospects — to not point out that it’s unethical.
You also needs to worth your merchandise individually. Many companies underprice core merchandise and overprice captive merchandise to compensate for a loss. Whereas this ought to be thought-about, they need to be priced individually primarily based on their value.
Lastly, prospects are the important thing issue on this situation. You must at all times worth and promote along with your prospects in thoughts. Your merchandise ought to nonetheless present worth in your prospects, however your merchandise shouldn’t be outrageously priced both. As talked about, you don’t wish to be flagged for unethical practices.
Captive Product Pricing Examples
Captive product pricing is a well-liked pricing technique. Not like optimum product pricing the place the accent is an elective buy, the captive product pricing technique requires the accent for the core product to operate.
Let’s go over some examples of services and products that use the captive product pricing mannequin you might have encountered earlier than.
Video Recreation Consoles
Online game consoles are typical examples of captive product pricing. The core product is the gaming console, like an Xbox, that could be good to have however nugatory with out the equipment. So, the captive merchandise are controllers, video games, and any extra equipment that make having an Xbox value it.
Creators of online game consoles are additionally capitalizing on a further good thing about captive product pricing — being the one one to supply equipment that work with the product.
For instance, Xbox video games solely work for Microsoft gaming merchandise. They aren’t interchangeable with Nintendo or Sony video games. Thus, these corporations profit from having customers buy a number of consoles to play their favourite video games that aren’t appropriate with their favourite system.
Automobiles
For automobile producers, the try and nook the market with captive product pricing is extra sophisticated than different industries, however they’re nonetheless an ideal instance. The core product is the automobile bought, and the captive product is any alternative elements or extra equipment (like GPS instruments) required to maintain the automobile working or enhance person expertise.
It’s tougher to nook the market with cars as a result of customers can typically buy elements from third-party sellers. Nevertheless, many companies discourage prospects from doing this by providing free companies if elements are purchased and put in by their technicians.
Cell Cellphone
Whereas you should purchase a tool with mobile capabilities and use it with out that operate, there is no such thing as a have to spend extra money on a product for that motive. A mobile phone is the core product, whereas a wi-fi plan is a captive product. A mobile phone is mainly ineffective with no wi-fi plan.
On this case, captive merchandise will also be extra equipment purchased from a producer or supplier. For instance, Apple lately stopped together with wall adapters with their cell telephones, so customers who don’t have already got a charging block have to make extra purchases from them.
SaaS Software program
SaaS software program additionally adopted the captive-product mannequin. Companies will typically present baseline tiers that buyers should purchase (core product) and cost for extra add-on functionalities (captive product) like leveling as much as a unique enterprise tier or paying for particular instruments.
The best way to Use Captive Product Pricing to Enhance Gross sales
In case you’re a enterprise with services or products that present worth and function from extra merchandise, you need to think about using the captive product pricing mannequin.
Pricing your core product at an inexpensive worth will appeal to new prospects. Then with the captive product, you’ll enhance your revenue margins and switch these new prospects into repeat prospects.
When executed proper, captive product pricing can enhance gross sales and construct a base of loyal prospects which are prepared and excited to buy equipment to boost the experiences they get out of your merchandise.
Editor’s word: This submit was initially revealed in January 2021 and has been up to date for comprehensiveness.
