Ancillary Product

What Does Ancillary Product Mean?

An ancillary product is a product that is offered as a bonus or add-on when purchasing another item. Instead of offering discounts or price reductions, businesses use ancillary products to incentivize customers to buy the main product. These products may be given for free as a sales incentive or offered at a discounted price, allowing businesses to increase sales and revenue through upselling without lowering the price of the primary item.

There are many examples of ancillary products in business. For instance, when renting a moving truck, a moving company might offer ancillary products such as boxes, bubble wrap, packing tape, and dollies—items that help complete the moving process.

Insurance policies can also be considered ancillary products. For example, a vendor selling smartphones might offer smartphone insurance as an add-on purchase, even if the insurance is not sold as a standalone product.

This is an interesting exception because insurance is a highly regulated industry in most areas. Providers of insurance products typically need to be licensed and regulated by local financial or insurance authorities before they can create or distribute insurance coverage.

Insuranceopedia Explains Ancillary Product

Ancillary products provide a valuable opportunity for companies to boost sales without reducing revenue through discounts, or to generate additional income by upselling customers who have already committed to a purchase.

Insurance policies are a natural fit as ancillary products, as they can be bundled with a variety of goods or services. Examples include warranties, free replacements for broken items, or guarantees of functionality or performance that compensate the owner in case of loss.

For example, a manufacturer of bicycle locks might offer up to $5,000 in “coverage” if the lock is defeated and the bicycle it secures is stolen. This type of insurance-like ancillary product helps persuade customers to purchase the lock by reducing the perceived risk of loss, ensuring that the lock “guarantees” protection for the bike. This approach is popular with businesses aiming to reduce the perceived risk of a product failing to live up to marketing promises.

Many people purchasing expensive electronics or items desire added security and peace of mind. Sellers of these products often offer warranties or other insurance products as ancillary purchases. In this case, the insurance policy or warranty serves as an additional revenue stream for the seller while offering peace of mind to the buyer. In fact, some retailers generate up to 50% of their revenue from the sale of ancillary products.

In the insurance industry, ancillary products can also refer to coverages that are not part of the primary plan, such as optional coverages. In health insurance, examples of ancillary care products include vision care, dental care, short-term medical, and hearing care. These products are considered ancillary to the main health insurance coverage for accidents and sickness.