In case you’re pondering of adjusting up your pricing technique, captive product pricing is a technique it is best to take into account.
The idea of captive product pricing is straightforward. For instance, think about proudly owning an Xbox with out video games. Until you simply get pleasure from amassing 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 virtually assured to have the identical prospects make further purchases. On this put up, you’ll be taught the advantages of captive product pricing and methods to make it work for your enterprise.
What’s captive product pricing?
Captive Product Pricing Issues
Captive Product Pricing Examples
The 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 perform or an add-on.
Usually, the core product is bought by the client solely as soon as, however the equipment are bought as needed — generally again and again. Firms usually value core merchandise at a loss and try to 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 shopper buys the printer and instantly buys ink (the accent) as a result of they realize it gained’t perform with out it.
Captive product pricing can enhance gross sales and improve revenue margins. Having equipment required for core product capabilities is a surefire strategy 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 a number of issues to remember 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 choose to do that if the merchandise aren’t essentially associated, as this may very well be seen as a cash seize on your prospects — to not point out that it’s unethical.
You must also value your merchandise individually. Many companies underprice core merchandise and overprice captive merchandise to compensate for a loss. Whereas this must be thought of, they need to be priced individually primarily based on their value.
Lastly, prospects are the important thing issue on this state of affairs. It is best to all the time value and promote along with your prospects in thoughts. Your merchandise ought to nonetheless present worth on your prospects, 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. Not like optimum product pricing the place the accent is an non-obligatory buy, the captive product pricing technique requires the accent for the core product to perform.
Let’s go over some examples of services that use the captive product pricing mannequin you’ll 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 further equipment that make having an Xbox value it.
Creators of online game consoles are additionally capitalizing on an extra advantage of captive product pricing — being the one one to provide 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 firms profit from having customers buy a number of consoles to play their favourite video games that aren’t appropriate with their favourite gadget.
Vehicles
For automotive producers, the try to nook the market with captive product pricing is extra difficult than different industries, however they’re nonetheless an awesome instance. The core product is the automotive bought, and the captive product is any alternative elements or further equipment (like GPS instruments) required to maintain the automotive operating or enhance consumer expertise.
It’s harder to nook the market with vehicles as a result of customers can typically buy elements from third-party sellers. Nonetheless, 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 perform, there isn’t any have to spend more cash 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 and not using a wi-fi plan.
On this case, captive merchandise will also be further equipment purchased from a producer or supplier. For instance, Apple just lately stopped together with wall adapters with their cell telephones, so customers who don’t have already got a charging block have to make further purchases from them.
SaaS Software program
SaaS software program additionally adopted the captive-product mannequin. Companies will typically present baseline tiers that customers can buy (core product) and cost for added add-on functionalities (captive product) like leveling as much as a special enterprise tier or paying for particular instruments.
The 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 further merchandise, it is best to think about using the captive product pricing mannequin.
Pricing your core product at an inexpensive value will appeal to new prospects. Then with the captive product, you’ll improve your revenue margins and switch these new prospects into repeat prospects.
When executed proper, captive product pricing can improve gross sales and construct a base of loyal prospects which might be prepared and excited to buy equipment to reinforce the experiences they get out of your merchandise.
Editor’s be aware: This put up was initially printed in January 2021 and has been up to date for comprehensiveness.
