Offering products at lower prices may lead the customer to have a positive view of the company. Using a penetration pricing strategy may help you develop a positive brand with customers. If a company or brand is introducing a new product, using a penetration pricing strategy may help it become established and gain customers. They can help you introduce a new product. These are some benefits of penetration pricing strategies : Related: Everything You Need To Know About Pricing Policy Benefits of penetration pricing strategies This can help them adapt their marketing tactics to account for their competitors' prices. Besides using them to promote their organization's products, marketing professionals also use their knowledge of penetration pricing strategies to determine whether a competitor is using them. Marketing professionals in multiple industries typically use penetration pricing strategies in their activities. Related: How To Price Your Products To Maximize Profits (With Tips) Who uses penetration pricing strategies? This can be important because it allows the company to increase its consumer base and profits. The exact pricing depends on several factors, such as how many competitors there are in the market, how similar their products are and how they price their products.īy demonstrating the value of their product at a low price, marketing professionals aim to retain their customers even after they've increased the prices for each product. It consists of offering the respective product at lower initial prices than required to make a profit, with the purpose of determining as many people as possible to try it. The low initial price can create an expectation of permanently low prices amongst customers who switch.A penetration pricing strategy is a marketing strategy that businesses use when introducing a new product or when entering a new market. Penetration pricing strategies do have some drawbacks, however: Sales volumes should be high, so distribution may be easier to obtain The low price can act as a barrier to entry to other potential competitors considering a similar strategy It forces the business to focus on minimising unit costs right from the start (productivity and efficiency are important) Encouraging word-of-mouth recommendation for the product because of the attractive pricing (making promotion more effective) Catching the competition off-guard / by surprise Penetration pricing is often used to support the launch of a new product, and works best when a product enters a market with relatively little product differentiation and where demand is price elastic – so a lower price than rival products is a competitive weapon.Īmongst the advantages claimed for penetration pricing include: However, there are some significant benefits to long-term profitability of having a higher market share, so the pricing strategy can often be justified. In the short term, penetration pricing is likely to result in lower profits than would be the case if price were set higher. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume. The strategy aims to encourage customers to switch to the new product because of the lower price. Penetration pricing is the pricing technique of setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers. The aim of penetration pricing is usually to increase market share of a product, providing the opportunity to increase price once this objective has been achieved. You often see the tagline "special introductory offer" – the classic sign of penetration pricing.
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