Captive Pricing

Introduction

Captive pricing involves the firm charging a low price for the core product and a high price for accessories and replacement parts. It is called captive pricing because in order for the customer to fully utilise the core product they have no option but to pay the high price charged for accessories and replacement parts for the core product.

Captive pricing is part of the pricing element of the marketing mix. It enables companies to make a good profit from the captive products that are required to use the core product.

Captive Pricing Example

For example a printer company sells their printer at a very low price. Their customers can use the printer until the ink cartridges run out. When the cartridges run out, customers discover that the replacement cartridges are more expensive than the printer. In order to continue using the printer the consumer has to pay the high price set for the replacement cartridge.

What is a Captive Product

A captive product is a product designed to work with a core product. Examples of captive products include accessories, replacement parts and add ons.

Captive Pricing Benefits

• Captive pricing allows a firm to maximise profits on the sale of the accessories.
• Captive products are often repeat purchases especially if they are replacement parts for the core product
• Captive pricing enables firms to gain market share on the core product.

Conclusion

Captive pricing can increase market share and products especially if the core product will only work with the firm's captive products. However firms need to set prices carefully, a very high price for captive products may affect the brand's reputation and core product sales.