Marketing not only markets the products or services of the company but it also plays with psychology of the consumers and captive product pricing is one of those techniques which plays with psychology of the consumer because under this method a company charges less for core or main product so as to lure customers to purchase the product from the company but when it comes to supportive product or product without which core product is of no use company sets higher price and since customer has to buy supportive product at regular intervals it results in a company making good profits and that is the reason why company do not have any problems in selling core products at loss or lower profit margins. In order to understand this concept better one should look at captive product pricing examples –
Examples of Captive Product Pricing
Trading Accounts in Stock Markets
In case of stock markets brokerages often charge less for opening of trading account and annual maintenance fees are also on the lower side but they keep brokerage for intraday trading and delivery based trading high because the, although trading account is the main or core product but real benefit as far as brokerage firms are concerned, occurs when an individual do trading regularly which will result in brokerage firm making good income as intraday trading by an individual is of repetitive nature which generates much more income than account opening fees of trading account.
Printers
Another example of a captive product is the printers because the cost of printers is not that much but when it comes to printer cartridges they are very expensive and since use of cartridges is of repetitive nature companies like HP, cannon and other printers manufacturing companies keep the price of printers reasonable but the price of printer cartridges are kept high which in turn results in these companies making substantial profit from sale of printer cartridges.
Razor Blades
Another example of a captive product are the razor blades because the cost price of razor which is the core product is very less but when it comes to razor blades which are changed frequently by the user are high and that is the reason why companies making razors charge very less for razors as they can cover the loss arising out from sale of razor by selling razor blades at high price.
Water Purifiers
In case of water purifiers, the price of water purifiers filters is high and since an individual will have to change the filters regularly because without filters there is no use of water purifiers the company making water purifiers will make good money from the sale of filters of water purifiers.
Glass Frames
Glass frames can also be put under captive products category as they usually cost less but when it comes to glasses they are very expensive and since people will change glasses frequently which results in the company earning more profits from the sale of glasses as compared to sales from glass frames.
As one can see from the above examples that main idea behind having captive product is that the product should be such that without supporting products it is of no use and those supporting products should not have close competitors as the whole premise of captive product is based on the assumption that people will buy supporting products at regular intervals from the company which make good the loss which company has incurred by selling core product at cheaper rates.