Retailers use several different strategies to come up with their prices. One of the strategies that they use is captive product pricing. This specific pricing strategy involves a retailer selling a base product for an inexpensive price or even giving it away for free. However, additional products are required to receive full benefit of the item received. The company loses a bit of money on the base product, but they make enough of a product on the additional items to make up the difference. The captive products are the additional items that the consumer purchases. If you are considering starting your own business, it would be beneficial to know more detail about captive product pricing.
Examples of Captive Product Pricing
Let’s take a moment to look at a few examples of captive product pricing.
You have likely used a razor at one point or another to shave some part of your body. Razors are a great example of captive product pricing because there is the base product, the razor handle, and the cartridges, the captive product. When you go to a retailer, you have likely noticed that purchasing a razor handle bundled with a limited number of razor cartridges costs a lot less than the bundled cartridges themselves. This is an example of captive product pricing because the company entices the consumer with its budget-friendly priced handle then makes a larger profit on you as you purchase more and more cartridges. Captive product pricing works on these razors because the disposable razors offered by the same companies or other companies do not compare in quality.
- Video Game Consoles
Any hardcore gamer will tell you that their video game console is amazing, but how amazing would that console be if they only had the console? Using the example from above, imagine having just a razor handle but no cartridges for it. The handle would be useless; a console is only as good as its accessories. Captive product pricing is used for consoles and their accessories with the console being the high-priced item and the captive products – the games, the extra controllers, the rechargeable battery packs (or batteries), and other accessories – being the less-expensive but still necessary items. A console with no games is nearly worthless, and console companies use that to their advantage. If you’re looking to get into the video game market, you should learn how to create video games.
Even in this modern age of email, blogs, and so many other ways to reduce paper, people still need printers. Such items are a third example of captive product pricing. You can purchase a good printer for a decent price, and it will usually come bundled with ink and even a bit of paper. However, once that ink and paper is gone, you will need more. Otherwise, your printer is nothing more than a giant paperweight. You can usually find a printer for as low as $50, but you can pretty much bet that the ink and paper will cost you just as much each time you run out. In this way, the printer is the base product, and the ink and paper are the captive products. To create less paper for your company, learn how to write great business emails to send to anyone you encounter for your business. If you plan to use email as only a way to market to your customers, try a class in email marketing.
- Theme Parks
Anyone who has been to a theme park knows that everything, even the entry fee, can cost a pretty penny. Yet, captive product pricing is still evident, and it is mainly because you are now a captive of the theme park. Usually, when you go to a theme park you pay for a ticket. With that ticket, you get the rides and attractions for free. There are usually few rides or attractions that cost extra in theme parks now. However, a sandwich that would probably cost you $2 if you were to purchase it at your local deli now costs you almost $10. Theme parks use captive product pricing in a near-literal sense – once you enter the park, you will be reluctant to leave if you end up hungry or thirsty. This is mainly because parking costs extra so if you did leave to go find something to eat, it would have to be whatever is nearby, and usually the places nearby use the theme park as a great opportunity to raise their prices too. In this way, the base product is the entry fee to the park, and the captive products are food, drink, and occasionally hotels and extra attractions.
- Wireless Companies
Few people are without a cell phone in this century. This is because wireless companies make it so easy to get a mobile phone. If you sign up for a contract plan with the wireless carrier, you can get a phone for free or for a price that is far less than retail. Wireless carriers will even compete with each other by signing with specific phone companies so that that phone is only offered through them. In this way, the base product is the free or inexpensive phone, and the captive product is the airtime and accessories you need to protect and care for your new gadget.
Interested in Starting Your Own Business?
If you are interested in starting your own business, you will need to know about different pricing strategies like captive product pricing. However, you need to know more than just this specific pricing strategy or even other pricing strategies. You can read about other pricing strategies, but you should also take a few classes on how to run a business. There is more to a business than just pricing your product. You will need to know how to start a business, how to draft a business plan, and so much more. Here are a few tips to help you start your business.
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