Posted in Marketing and Strategy Terms, Total Reads: 666
Definition: Captive Market
Markets where the competition is limited, therefore goods are not available at competitive prices. The consumers either have no choice but to buy at expensive prices or not to buy at all. Any market which is a monopoly or oligopoly is a captive market.
A captive market is created when the markets are dominated by one or two major players. What happens is that since these major suppliers have an upper hand at deciding prices and the product lines to offer, they generally charge a premium for being the only one or the only two providing that good or service. As a result one of the three things might happen at the consumer end; the consumer may be forced to buy a product at a higher price than he may be initially willing to pay, the consumer might not get the product of his choice because the variety offered is limited, hence he has to make do with what is on offer or the consumer might either not be able to afford such a product or the product might not fulfil his requirements and hence the consumer might be left with no choice but to not buy the product at all.
Captive market may be created in one of the following scenarios:
1. The seller is the sole owner of the product (hence the product is available nowhere else)
2. The seller is offering some unique feature or benefit (and hence demanding a premium for it)
3. There are shortages in the market
4. Competitors are offering at a higher price
5. Lack of competitors in the market
For example, imagine yourself in a movie theatre, you are absolutely hungry and would love to eat a vegetarian burger with cheese. The only vendor there is is Bigger Burgers, your budget for a snack is Rs.250. Bigger Burgers offers you a vegetarian burger with cheese at Rs. 350. Since Bigger Burgers is the only burger outlet in the theatre, you will either pay an extra Rs.100 and get the vegetarian burger with cheese, or get the vegetarian burger without cheese at Rs. 250 or not buy the burger at all because you need to have a soft drink with your snack and both a burger and a soft drink cannot be bought for your budget of Rs. 250 (and there is absolutely no other cheaper burger option available.)