Captive Pricing

Concept summarized by Sam Mishra, President, Franteractive

Also known as Two-Part Pricing. Here, the goal is to make the customer captive to the second complementary part, by providing the first part at an attractive price / for free. Cell-phone service providers use this pricing model by providing cell phones for free, which are tied to a one-year / two-year service contract.  Another example is that of affordable ink-jet printers and expensive ink cartridges from the same manufacturer: e.g., Cannon ink-jet cartridges work only with Cannon ink-jet printers and HP ink-jet cartridges work only with HP ink-jet printers. The printer manufacturers rake in huge profits by selling the printer once and selling the expensive ink cartridges  again and again to the customers held captive by the investment in the printer.

If you can think of other captive pricing examples in your daily life, please email us at info@franteractive.net. If we add your example to the list, you will earn 20 strategy points. Once you accumulate 1000  strategy  points, you will be  eligible to receive a  free copy of Strategic Case Analysis by Sam Mishra.

 

Also see Penetration Pricing, Perceived Value Pricing, Product Line Pricing, Skimming Pricing, and Target Pricing  Pricing.