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 The strategy works on the expectation that customers will switch to the new brand because of the lower price. It forces the business to focus on minimising unit costs right from the start (productivity and efficiency are important) Penetration pricing is a pricing strategy where the price of a product is initially set low to rapidly reach a wide fraction of the market and initiate word of mouth. Encouraging word-of-mouth recommendation for the product because of the attractive pricing (making promotion more effective) Penetration pricing is one of the many effective pricing strategies whereby businesses introduce a new product/service at a low price to attract new. 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: Penetration pricing attempts to disrupt an established market by introducing a new product or service at a lower price to entice new customers to purchase or. 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. Penetration pricing: A company enters the market with a lower initial price than their competitors, then raises it after their customer base is established. 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. This involves setting a low price for your product or service in order to quickly gain market. You often see the tagline 'special introductory offer' – the classic sign of penetration pricing. One strategy that can benefit startups is penetration pricing. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term.

Penetration pricing meaning