What is a captive pricing strategy?
A pricing strategy for captive products relies on the sale of two different-priced complementary articles that are interdependent.a diferente precio.
Maria Jose Guerrero
A pricing strategy for captive products relies on the sale of two different-priced complementary articles that are interdependent. A clear example of this would be when selling a pod coffee machine. The coffee machine is the main product, and the coffee pods are the captive product, as you will always need to buy them if you want to use the coffee machine. Although the main product is only purchased once, the customer has no choice but to continue purchasing the captive product. Or, to put it another way, to continue increasing the profits of the manufacturer or e-commerce business. Generally, pricing strategies for captive products are used for food products or consumer staples. You may be weighing up whether to incorporate this into your global pricing strategy. From Minderest, we explain what you should consider and the pros and cons.
How to implement a pricing strategy for captive products
First, you should be aware that the main products that form this duo are generally sold at relatively low prices, and with attractive offers to capture consumers’ attention. At the same time, complementary products are often offered to first-time customers at a very low price, or even free. Let’s go back to the coffee machine example. At certain times of the year, the purchase includes a limited number of pods as a free gift. From the second purchase onwards, captive products tend to be sold at higher prices, which generate a higher profit for the brand. This is how to create a dependency cycle with consumers, which leads them to buy these captive products time and again.
In the medium and long term, these prices can be changed and adjusted to supply and demand levels in the market, and to increase the profit margin of e-commerce businesses. Maintaining a strategy coherent with the brand’s corporate image and, with what customers expect to receive is always essential. To achieve this, we recommend using a pricing tool, like Minderest, for a precise recommendation of the most suitable prices at any moment in time.
Advantages and disadvantages of a captive pricing strategy
The main advantage of applying a pricing strategy to captive products is that it allows e-commerce businesses and brands to increase profits. It also allows them to maintain a constant income stream due to the need for buyers to purchase these complementary products. It also increases traffic to the online store. It encourages user loyalty as well, as they trust the brand due to their multiple purchases over a prolonged period.
On the negative side, if prices are not applied correctly to captive products, it can damage the brand’s identity due to the high prices of complementary products. In turn, sustaining a captive pricing strategy over time makes it necessary to offer regular news and updates about these complementary articles. This ensures that consumers do not stop using them in the longer term, or look for lower-priced substitute brands.
In this scenario, businesses need to be able to count on a competitor price monitoring system, which allows them to be up to date with the price variations of other companies in the sector, and act accordingly. This is especially true of businesses whose competitors have substitute products or own-brand products that can oust their own. Assess their suitability for your e-commerce business and ensure you always offer the best prices for your products.
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