Monday, February 15, 2010

Captive Product Pricing

Captive-Product Pricing is one pricing strategy used by manufacturers. Kotler defines captive-product pricing as, "setting a price for products that must be used along with a main product" (Kotler 272). Producers of captive products often price the main product low and then set high markups on the supplies or expendable products. According to Kotler many companies make very low margins on the main products but are able to make very high margins on the expendable secondary products.

The text mentions video game consoles, razor blades, printers, and theme parks as examples of companies that use captive product pricing. An excellent example of a company that employs captive product price strategies is Verizon Wireless, who sell the popular Motorolla DROID phone. In this case the pricing can be broken down into two part pricing. The price of the service is broken down into a fixed fee plus a variable usage rate (Kotler 273).

Verizon, as the exclusive carrier of the DROID, offers massive discounts on the actual phone to lure customers to sign up for a Verizon data plan. Extra minutes, internet, gps services, and applications all offer Verizon high margins of profits, while the resale of the DROID phone likely provides little gross profit. Wireless companies all employ captive product pricing strategies, Verizon is just one great example of the prolific price strategy.

Nick Unan
Marketing Section E

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