In the event you’re considering of fixing up your pricing technique, captive product pricing is a technique you must take into account.
The idea of captive product pricing is straightforward. For instance, think about proudly owning an Xbox with out video games. Except you simply get pleasure from gathering 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 may be related to SaaS companies, too. With this pricing mannequin, you’re virtually assured to have the identical clients make further purchases. On this submit, you’ll study the advantages of captive product pricing and the right way to make it work for what you are promoting.
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 perform or an add-on.
Sometimes, the core product is bought by the client solely as soon as, however the equipment are bought as obligatory — typically over and over. Firms usually worth core merchandise at a loss and try and make up the distinction by pricing the captive merchandise and equipment at the next fee.
Added worth can come from being the one enterprise that sells the extra required accent, as you’re assured extra enterprise from clients who buy your core product.
An instance of captive productive pricing is a printer and its required ink. There’s actually no cause 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 which means. On this instance, a client buys the printer and instantly buys ink (the accent) as a result of they understand it gained’t perform with out it.
Captive product pricing can increase gross sales and improve revenue margins. Having equipment required for core product features is a surefire option to encourage buyer loyalty, particularly in the event that they really feel just like the expense is price it.
Captive Product Pricing Issues
There are a number of concerns to bear in mind in the event you 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 decide to do that if the merchandise aren’t essentially associated, as this might be seen as a cash seize in your clients — to not point out that it’s unethical.
You must also 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 price.
Lastly, clients are the important thing issue on this state of affairs. You must all the time worth and promote along with your clients in thoughts. Your merchandise ought to nonetheless present worth in your clients, however your merchandise shouldn’t be outrageously priced both. As talked about, you don’t need to be flagged for unethical practices.
Captive Product Pricing Examples
Captive product pricing is a well-liked pricing technique. In contrast to optimum product pricing the place the accent is an non-compulsory buy, the captive product pricing technique requires the accent for the core product to perform.
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, which may be good to have however nugatory with out the equipment. So, the captive merchandise are controllers, video games, and any further equipment that make having an Xbox price it.
Creators of online game consoles are additionally capitalizing on an extra advantage of 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 shoppers buy a number of consoles to play their favourite video games that aren’t appropriate with their favourite system.
For automotive producers, the try and nook the market with captive product pricing is extra sophisticated than different industries, however they’re nonetheless an awesome instance. The core product is the automotive bought, and the captive product is any substitute elements or further equipment (like GPS instruments) required to maintain the automotive working or enhance person expertise.
It’s harder to nook the market with cars as a result of shoppers can usually buy elements from third-party sellers. Nonetheless, many companies discourage clients from doing this by providing free companies if elements are purchased and put in by their technicians.
Whereas you should purchase a tool with mobile capabilities and use it with out that perform, there isn’t any must spend extra money on a product for that cause. A cellphone is the core product, whereas a wi-fi plan is a captive product. A cellphone is principally ineffective with out a wi-fi plan.
On this case, captive merchandise can be further equipment purchased from a producer or supplier. For instance, Apple not too long ago stopped together with wall adapters with their cell telephones, so customers who don’t have already got a charging block must make further purchases from them.
SaaS Software program
SaaS software program additionally adopted the captive-product mannequin. Companies will usually present baseline tiers that customers should buy (core product) and cost for added add-on functionalities (captive product) like leveling as much as a unique enterprise tier or paying for particular instruments.
How you can Use Captive Product Pricing to Improve Gross sales
In the event you’re a enterprise with services or products that present worth and goal from further merchandise, you must think about using the captive product pricing mannequin.
Pricing your core product at an reasonably priced worth will entice new clients. Then with the captive product, you’ll improve your revenue margins and switch these new clients into repeat clients.
When executed proper, captive product pricing can improve gross sales and construct a base of loyal clients which are prepared and excited to buy equipment to reinforce the experiences they get out of your merchandise.
Editor’s notice: This submit was initially revealed in January 2021 and has been up to date for comprehensiveness.