Captive pricing is a pricing strategy where a company offers a product or service at a low price point to attract customers and then increases the price once customers become dependent on the product or service. This is often referred to as “lock-in” pricing, as customers become locked into using the product or service due to the difficulty of switching to a competitor.
Captive pricing is effective in the SaaS industry because many SaaS products require a significant investment of time and resources to learn and integrate into a company’s workflows. Once customers have invested in a product and integrated it into their business processes, the cost of switching to a competitor can be high, making them more likely to continue using the product despite price increases.
Captive pricing can be risky for SaaS companies if customers feel they are being taken advantage of or if the price increases are too steep. This can lead to customer churn and damage the company’s reputation.
