The willingness of customers to buy a good or service from a certain business depends on the price the brand sets for the product. It is important for businesses to understand the benefits of setting a good price for the customers.
We all know customers look for the same product at a lower price elsewhere before buying anything. Therefore, businesses can lose customers because of high pricing. Hence, businesses look for ways to choose the best pricing strategy they have.
There are many methods to attract customers, but one of the most and common method is captive pricing. Continue reading as discuss all there is to know regarding captive pricing.
What Is Captive Pricing?
In captive pricing, a business sets a price for the products that consist of both a core product and several accessory products. First, let’s understand what core products and captive (accessory products) are.
Core products refer to the main product or service that is the core competency of the company. Captive pricing is a strategy that makes use of a certain product that would certainly attract customers. Customers usually buy core products once only.
On the other hand, accessory products are generally goods utilized by a company to attract the eye of a customer towards the main product. Captive products refer to the products that are necessary to have to use the core product.
The best use of captive pricing is with physical products. This strategy benefits businesses as it maximizes the profit. It is a pricing technique adopted by marketers, who set the price of the core product low and the captive products high.
Businesses tend to make more profit from the add-on components to make up for the low profit on the main product.
When And Why Should Business Use It?
Well, captive products help in maximizing revenue; with captive pricing strategy, a business settles for a little profit on the core products and earns high profit on the captive products. Businesses that want to use a captive strategy tend to offer a product mix pricing.
If a seller has a product that includes other complementary products necessary for its use, sellers can use these products to implement a captive pricing strategy.
Companies that offer product attachments attract the customers as they know they will need the add-on products at some point. For example, ink for printers; there will most certainly come a time where the ink provided with the products runs out.
Therefore, in these cases, using a captive pricing strategy by offering extra ink could compel the customer to buy it and result in more sales.
Examples Of Captive Pricing
Captive pricing is a common strategy used in electronic categories. For instance, sellers offer gaming consoles at a price that doesn’t earn them a lot of profit. However, the games and other accessories such as controllers, when sold, include a good profit margin.
Computers and cameras are two other examples that you, as a customer, can find alternatively at a good price. However, the included accessories might be a bit more than a separate price.
A classic example of captive pricing is the razors that many people buy. It is an inexpensive product but requires the customers to buy razor blades for a lifetime to use it. Otherwise, without the razor blades, the razor itself is useless.
Therefore, the seller sets the razor’s price that would initially not benefit them but attract the customers. However, the razor blades would sell at a price that would most certainly benefit the seller.Do You Know Your Competitors Prices? Click Here to Start Tracking Them Today!
Advantages of Captive Pricing
The biggest advantage of captive pricing has to be the attraction level of customers that increases towards the seller’s product. We all know if the price of a product is reasonable, customers will be willing to pay a certain amount to buy it. The process of buying products increases, therefore, increasing revenue repeatedly.
Captive pricing is a way for businesses to keep customers loyal to the products they have to offer. Other than this, a captive pricing strategy is also a way to promote or advertise newer versions of the products or even products that are unrelated.
Disadvantages Of Captive Pricing
Not all customers would find this strategy attractive. Well, the reason for this is the need to pay not only for the main product but also the mandatory accessories that come along with it. The high pricing for complementary products can, in some cases, push the customer away. Hence, it will affect the revenue of the business negatively.
On the other hand, companies that do not offer newer versions or complementary products will not be able to benefit from captive pricing strategies.
Captive pricing can frustrate the customers, and they consider it a “trap” to pay a small price initially, only to pay perpetually. Thus, it can earn bad reputation or tarnish the image of a brand.
Should A Business Use It?
Well, it isn’t that easy to determine whether a business should use it or not. The important thing to remember before proceeding with this strategy is the risks that come with it. It is essential to consider how customers would react to the prices set.
Other than this, if the prices set are unreasonable, it could result in public relations issues. However, if a business wants to use this method, there is no harm. It is important for the business to determine a price that has a good balance between the main product cost and accessory products.
For instance, if a customer can buy the accessory products separately but finds it more expensive than the bundle the seller offered, they will buy the captive product instead.
Using the strategy in the right way can help increase sales, generate more profits, and build loyalty towards the brand. Hence, this method is a viable pricing strategy for any business looking for success in the market.
If you’re planning on using a captive pricing strategy, make sure to go through all the necessary factors that would either result in a loss or profit. This will ultimately help your business to grow and achieve a good brand image.Do You Know Your Competitors Prices? Click Here to Start Tracking Them Today!