Captive-Product Pricing
It is a pricing strategy that involves setting a price for the products that must be used along with the main product. For example, a razor is the main product, and the razor blade is a captive product, a printer is the main product, and its cartridge is the captive product. The main product is often sold at a low price or even at a loss, with the intention of making a profit from the sale of complementary or related products or services by keeping their price high. It’s a clever strategy to get customers hooked on a product or service and then make money from additional purchases.
Suppose a printer company is selling printers at a very affordable price. But, the printer requires a specific type of ink cartridge that can only be purchased from the same company, and these cartridges are quite expensive. In this case, the printer is the main product being sold at a low price or sometimes at a loss to attract customers. The company knows that once customers have the printer, they will need to buy the ink cartridges regularly, which is where the profit is made. They have a captive market because customers are “captured” by the printer and compelled to buy the associated products or services. The purpose of captive-product pricing is to create customer loyalty and generate ongoing revenue through the sale of complementary or related items. The initial low price of the main product entices customers, but the company recoups its profits by selling the supporting products or services that are necessary for the main product to function properly. This strategy is commonly used in various industries, such as printers and ink, gaming consoles and video games, razors and razor blades, and even in the case of some software and services. By offering a compelling deal on the main product and then making money from the additional products or services, companies can establish a long-term relationship with customers and secure a steady stream of revenue.
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