Captive Product Pricing

Description

When you have a captive market, you can increase prices to 'what the market will bear'.

Captive markets include:

Where you have an effective monopoly with no serious competitors within your target marketplace.

Where the main product is bought and you are selling add-ons, service, etc.

Where governments, large markets, etc. have approved you as a 'standard supplier' and where you have no serious competition for what you sell to them.

Where customers are particularly loyal and not very price-sensitive.

When doing this, beware of alienating customers by being too greedy. Especially when their purchase cycle for base goods is relatively frequent, you can lose all of their custom as they seek to reduce the overall cost of ownership.

Example

A kitchen mixer company sells spares for relatively high prices.

A printer manufacturer sells the printer for a low price in order to capture the market and then sells print cartridges for a higher price.

A strong-branded fashion house with an 'exclusive' image sells their goods for a high price to afficionados who are not price sensitive.

Discussion

The principle of the captive market is first to capture customers and then to 'milk' them for as much as you can successfully achieve. This can be helped with strong marketing and advertising, where the value of products and add-ons are emphasized (such as the razor manufacturer who markets their blades as being particularly sharp).

A classic approach for captive markets is what is called the 'Razor and blades' strategy, where the basic razor is sold for a low cost, and the regular purchase of blades is where all the profit is made.

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Captive Product Pricing

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