When someone buys a printer, they need ink cartridges to continue printing. When someone buys a razor, they need disposable razor blades to maintain a smooth shave. Both of these examples show captive product pricing in action.
This pricing strategy is highly effective in getting the attention of customers, and maximizing the sales of different, yet complementary products.
What is captive product pricing?
Captive product pricing is a strategy that aims to attract customers with a low price for its core products, and then sets prices for accessory products (replacements, add-ons, etc.) that have healthy margins.
While a company doesn’t earn much, or may even lose money, from the sale of the core product, the profit margins of accessories are enough to make up for any losses.
And since accessory products (referred to as captive products) are purchased more frequently in order to use the core product, companies end up earning more in the long run.
Captive product pricing falls under the category of product line pricing, which separates and prices products to establish various quality levels and attract a wider customer base.
3 examples of captive product pricing
The best way to understand how captive product pricing works and can increase a company’s overall sales is with examples. Here are three examples of the captive product pricing model in use:
Medify Air Purifier
Medify sells its MA-14 Air Purifier for $88.99. Every purifier comes with one filter that lasts about three to four months.
With MA-14 replacement filters costing $39.99 each, a customer is projected to spend
anywhere from $120-160 a year to continue using their air purifier.
CHEMEX Coffeemaker
CHEMEX sells its Six Cup Classic Coffeemaker for $47, a reasonable price point for a product that’s showcased in museums for its iconic design. The coffeemaker’s unique shape is meant to be used with CHEMEX’s Bonded Filters that are also cone-shaped and 20-30% thicker than standard filters. A pack of 100 filters retails for $10-11, which customers readily purchase to get their daily cup.
Swiffer WetJet Floor Mop Starter Kit
Swiffer sells its convenient all-in-one mopping kit for $25-30. The starter kit includes one mop, five pads, and one bottle of cleaning solution. Once the pads and cleaning solution are used, customers need to purchase refills of both items.
The pads and bottles of cleaning solution are specific to the Swiffer mop, costing about $10 for a 24-pack of pad refills, and $6-8 for a bottle of cleaning solution. Plus, Swiffer has come out with a variety of cleaning solutions with different scents and surface applications that encourage more purchases.
What are the benefits of captive product pricing?
Captive product pricing is proven to increase a company’s total sales, customer demand, and long-term loyalty—all without any additional investment or product development.
By lowering the price of its core items, companies can gain increased attention which often results in greater overall sales.
New customers who enjoy the product are motivated to continue purchasing complementary products, which increases exposure and affinity to the brand.
They’re more likely to purchase other products, even at higher price points, creating a demand cycle and greater customer lifetime value.
How captive product pricing works for your business
A few key factors should be present for captive product pricing to effectively increase sales.
To start, captive pricing requires captive products that naturally complement the core product. Customers should be able to use the products together and receive significant value when purchasing any additional items. Otherwise, a brand can risk coming off as exploitative and risk damaging its reputation in the long run.
To prevent this from happening, it’s best to price products separately when using a captive pricing strategy. Looking at each product on its own helps set more accurate pricing based on its distinct benefits and worth.
The more captive products a core product has, the more potential revenue can be generated from this pricing strategy. Once a company sees a shift from one-time purchases and an increase in overall sales from captive pricing, they can start developing new products that serve as complements to their core product. This keeps the market engaged and encourages continued customer loyalty and sales.
How QuickBooks helps you automate pricing
As your company applies new pricing models, having an easy way to implement and manage these changes makes the entire process easier.
QuickBooks offers customizable and automated pricing rules that can be applied according to your business needs.
You can set any number of pricing rules that apply to different purchase quantities, product management categories, scheduled promotions, and other custom groups. By using a dedicated pricing systemto handle all the routine tasks, you can effectively reduce any manual mistakes and see greater results in your captive product pricing strategy.
Final thoughts
If your company offers several complementary products that provide added value to customers, captive product pricing may be an effective strategy to try.
A core or main product offered at a lower price increases the number of customers who are willing to try your brand. And once customers see value from their initial purchase, they’ll be much more likely to continue purchasing other products from you in the years to come.
