Definition - What does Ancillary Product mean?
An ancillary product is a product that is acquired as a bonus or add-on purchase when buying another product. This type of product is often offered as a bonus instead of reducing prices or offering discounts to incentivize customers to purchase the main product. It can be given to the customer for free as a sales incentive or at a discounted price for purchasing the main product. This helps a business increase sales without offering discounts and increases revenues through upsells.
There are many examples of ancillary products in the business world. For example, if you are planning a move and you rent a moving truck from a moving company, they don’t just rent you the truck. They can also sell or rent you ancillary products related to your move such as boxes, bubble-wrap, packing tape, dollies, and other equipment that you might need along with your truck to complete the task at hand.
Insurance policies can also be purchased as ancillary products. A vendor selling smartphones, for instance, might offer the buyer smartphone insurance coverage as an add-on purchase, even if they don't sell the insurance as a stand-alone product.
This is a particularly interesting exception because insurance is a highly regulated industry in most jurisdictions. Most sellers or providers of insurance products need to be licensed and regulated by their local financial or insurance regulatory body before they are able to create and/or distribute insurance products.
Insuranceopedia explains Ancillary Product
Ancillary products are a great way for companies to increase sales without sacrificing revenue through discounts or to increase revenues by upselling customers who have already committed to purchasing one of your goods and services.
Insurance policies are a natural fit as an ancillary product for various purchases since they can be bundled with a variety of different goods or services. Some examples of ancillary products in this category include warranties, free replacement on items if they break, or even guarantees of functionality or performance that would compensate the owner upon loss.
One example of an insurance-like ancillary product related to a guarantee of performance would be if a manufacturer of bicycle locks decided to offer their customers up to $5,000 in “coverage” if their lock was defeated by mechanical means and the bicycle it was protecting was stolen. This would be an example of an insurance-like ancillary product designed to convince customers to purchase the lock as it is “guaranteed” to protect your bike one way or another. This type of ancillary product offering is very popular with businesses looking to convince customers to purchase a new product by reducing the risk of loss when the product fails to live up to its marketing promises.
Many people who buy electronics or other expensive items want added security and peace of mind by insuring it. Sellers of these products, then, may offer warranties and other insurance products that can be purchased along with the item. In these instances, the insurance policy or warranty is an ancillary product to the primary purchase. These help the seller generate additional revenue via an additional stream and provide the buyer with peace of mind. This type of product is so important that many retailers actually generate up to 50% of their revenues from the sale of ancillary products.
In a purely insurance context, ancillary products are also sometimes used to describe coverages that are not part of the primary plan such as optional coverages. Examples of ancillary care products in the health insurance context include: vision care, dental care, short-term medical, hearing care, etc. These are considered ancillary to the main health insurance coverage for accidents and sickness.
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