Product management glosary

Captive Product Pricing

What is Captive Product Pricing?

Introduction

Captive product pricing is a pricing strategy that involves offering a product at a lower price to attract customers, while charging a higher price for complementary products or services that are necessary for the use of the initial product. This strategy is often used by companies to increase sales and profits by encouraging customers to purchase additional products or services.

How Captive Product Pricing Works

Captive product pricing works by offering a product at a lower price to attract customers, while charging a higher price for complementary products or services that are necessary for the use of the initial product. For example, a printer manufacturer may offer a printer at a low price, but charge a higher price for replacement ink cartridges. The customer may be willing to pay the higher price for the ink cartridges because they are necessary for the use of the printer. Another example of captive product pricing is the razor and blade model. Razor manufacturers often sell razors at a low price, but charge a higher price for replacement blades. Customers may be willing to pay the higher price for the replacement blades because they are necessary for the use of the razor.

Advantages of Captive Product Pricing

Captive product pricing has several advantages for companies. First, it can increase sales and profits by encouraging customers to purchase additional products or services. Second, it can help companies establish a loyal customer base by offering products or services that are necessary for the use of the initial product. Third, it can help companies differentiate their products from competitors by offering complementary products or services that are not available from competitors.

Disadvantages of Captive Product Pricing

Captive product pricing also has several disadvantages. First, it can lead to customer dissatisfaction if the prices of complementary products or services are too high. Second, it can lead to customer resentment if the prices of complementary products or services are perceived as unfair. Third, it can lead to reduced sales if customers are unwilling to pay the higher prices for complementary products or services.

Conclusion

Captive product pricing is a pricing strategy that involves offering a product at a lower price to attract customers, while charging a higher price for complementary products or services that are necessary for the use of the initial product. This strategy can increase sales and profits, establish a loyal customer base, and differentiate products from competitors. However, it can also lead to customer dissatisfaction, resentment, and reduced sales if prices are perceived as unfair or too high.