![]() The low initial price can create an expectation of permanently low prices amongst customers who switch. 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) ![]() The goal is to attract a large number of customers and establish the product or service as the preferred choice in the market. Catching the competition off-guard / by surprise What is a penetration pricing strategy Penetration pricing is a marketing strategy whereby an organization sets a low price for its product or service to rapidly gain a significant market share. 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. The intention of loss leader pricing and penetration pricing is the same to expand the market share. When a product is launched, it is priced much below its competitors, and over time the price is increased. 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 penetration pricing strategy is exactly the opposite. 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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