Optional product pricing
Captive product pricing (correct?)
detail:
Optional-Product Pricing
Many companies use optional-product pricing—offering to sell optional or accessory products
along with their main product. For example, a car buyer may choose to order power windows,
cruise control, and a CD changer. Pricing these options is a sticky problem. Automobile companies have to decide which items to include in the base price and which to offer as options. Until recent years, The economy model was stripped of so many comforts and conveniences that most buyers rejected it.
Captive-Product Pricing
Companies that make products that must be used along with a main product are using captive product pricing. Examples of captive products are razor blades, camera film, video games, and
computer software. Producers of the main products (razors, cameras, video game consoles, and
computers) often price them low and set high markups on the supplies. Thus, camera
manufactures price its cameras low because they make its money on the film it sells. In the case of
services, this strategy is called two-part pricing. The price of the service is broken into a fixed fee plus a variable usage rate. Thus, a telephone company charges a monthly rate—the fixed fee—plus charges for calls beyond some minimum number—the variable usage rate. Amusement parks charge admission plus fees for food, midway attractions, and rides over a minimum. The service firm must decide how much to charge for the basic service and how much for the variable usage. The fixed amount should be low enough to induce usage of the service; profit can be made on the variable fees.
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