The Origins of Captive Pricing : Electric Lamp Renewal Systems

Purpose: 
 The paper describes the development of electric lamp renewal systems, perhaps the first, or certainly one of the first, applications of Captive Pricing. Design/methodology/approach: 
 Much material for the research comes from a variety of archival sources and publications of the early part of the 20 century. Findings: The free lamp renewal system was brilliant and effective: its high level of customer service and human contact dispelled fear raised by the new energy source, increasing the acceptance and use of electric lighting and, thereby, electricity. Lighting, in the absence of electrical appliances, was one of the few users of electricity. Thus, the electric companies created perhaps the first captive pricing marketing program Research limitations/implications: We examined the electric lighting industry at the turn of the 20 century. Other examples of technology adoption and captive pricing could generalize our findings. Practical implications: Our research suggests that supportive programs, which are high in customer contact and customized service, can aid in the adoption of new technology and unfamiliar products. By encouraging the use of such free or cheap products, customers are induced to higher usage of related products that increase the revenue stream to the provider. Originality/value: 
 The lamp renewal system is unknown today, yet was a crucial factor in winning consumer acceptance of electric lighting and an early example of captive pricing. Although the concept of uniformed men in trucks coming to customer homes once a month to clean and replace light bulbs is astonishing today – it worked! Introduction Modern marketing has provided many examples of firms practicing Captive Pricing – selling products that must be used in conjunction with another product. Consumer firms as diverse as Gillette, Kodak, Apple, AT&T and Canon have all this technique in an effort to boost their bottom line. Generally, Captive Pricing involves the initial sale of a product at a reduced or even zero price in order to secure a stream of future purchases at a highly profitable price, based on the monopoly status of the selling firm for that specific product. But where and when did this concept begin? This paper provides a description of perhaps the first, or certainly one of the first, applications of Captive Pricing. Kotler (2010) defines Captive Pricing, sometimes called Captive-Product Pricing, as marketers making products that must be used along with the main product (p. 314). He cites razors, video game consoles and printers as examples of main products which then necessitate a stream of future purchases in order to be utilized. Over the years, several variations on this practice can be observed: