What is Captive Pricing?

Captive strategy refers to a type of marketing and sales-based approach that persuades or limits the customer, buying a good or product initially, to continue buying prospective products from that one vendor. Though there are lots of different captive strategies designed for customers, but strategies related to captive pricing particularly involve variations in the ultimate cost of product so as to positively influence the prospective buying decisions of the customer.

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How is Captive Pricing Use? 

Captive pricing strategies signify a lock-in contract where a decision initially made compels the buyer to stick to the same seller for prospective sales. For example, a customer buying smartphones at affordable prices has to enter into a contract for a specific time period with a mobile network. Sometimes, captive pricing strategy can also be regulated in an artificial manner. Say, if a buyer makes a specific number of purchases from a specific store or vendor, he or she would receive a free product or sample of a new product.

Types of Captive Pricing 

Majority of the captive strategies fall under the loss leader category, where the customer is tempted to make the initial purchase because of very low prices. For instance, razors designed for mens use are not costly initially. So, once you buy a razor, you are required to get the related razor blades from the similar brand until razor gets damaged. The refills for razor blades carry price tags that are sufficient for making prospective profits. Products that follow the captive pricing strategy cost more than the competitors. For instance, a designer couch and the related accessories such as slipcovers that need to be bought from the same company.

Time Frame

The time frame for captive pricing strategies may vary from the initial product, customer to the companys lifetime, or it can be a combination of all three elements. For instance, a razor will have to be dumped or thrown away once it wears out. At this time, the customer has the option of switching to a different company or brand. Now, if the customer liked that razor and wants to be loyal to the same initial company, he can try using another razor but from the same company. Also, he can educate his children to choose the same brand for shaving purposes, thereby, inculcating a sense of product loyalty within them.

Geography

Captive pricing strategies also be executed on the basis of a specific location. For instance, lets compare the cost of swimwear sold at a local shop and a beach. Customers wont mind spending higher amounts of money if it saves their time and efforts. Also, they will do so if they are unable to get similar product at a lower price.

Considerations

Captive pricing refers to an approach of forcing customers to be loyal towards a specific brand in at least short-run. However, it is important for the seller to know the difference between affordable and extremely pricey captive strategy. If a customer needs to spend a bit more for making effective use of previous purchases, he or she wont mind being loyal to the vendor or sticking to the brand in the long-run. However, if a customer is asked to pay twice or thrice the amount of the initial purchase, he or she would most likely switch to some other affordable brand.