#EXAMPLE OF PENETRATION PRICING HOW TO#

Understanding these benefits can help you make better-informed decisions in terms of pricing for a company's new products and services. There are several advantages of using this pricing strategy even though businesses risk losing customers if they're unable to establish brand loyalty during the introductory pricing phase.

Related: Examples of Price Skimming (Definition, Pros and Cons) Significance of penetration pricing Moreover, many companies also spend considerable amounts on marketing during the launch period for a new product or service, which may contribute to their losses. By pricing their products and services closer to the cost price, these companies may earn significantly less per product, limiting their profitability. Related: What Is Price Sensitivity, and Why Is It Important? Lower initial profit marginsĪ company that uses a penetration strategy may experience lower initial profit margins. This might increase customers' willingness to continue using the product even after the initial promotional period. Companies can also indicate on marketing materials and price tags that the usual price is higher. One way for a company to mitigate this risk might be to constantly remind customers that the initial price is an introductory one. This may be especially common in the absence of viable alternatives on the market for customers to compare the price. Introducing a product or service to a market at a lower price may cause customers to devalue it.

#EXAMPLE OF PENETRATION PRICING HOW TO#

Related: What Is Price Discrimination? (Plus How to Implement It) Devaluation of the product or service Without continued customer loyalty and purchases, a business may realise an overall monetary loss in using the penetration pricing strategy. In mitigating this risk, it's beneficial to ensure that the company offers ways to connect with the customer and provides something of value throughout the initial price increase. The main risk in using this pricing strategy is that a customer might decide to purchase elsewhere or go back to the competition once the introductory period is over. Here are some of the common risks of using this technique: Loss of market share after the initial period When determining whether to implement such a pricing strategy, it's important for you to consider its risks. Related: 59 Pricing Analyst Interview Questions (Plus Sample Answers) Risks of this pricing strategy Pricing products to penetrate the market is important because it provides a company with the opportunity to earn the loyalty of a new customer who may have chosen to go to a competitor instead. The lower cost can entice likely customers to take the step to purchase a particular product or service versus one that may have entered the market at a more typical price. This pricing strategy works by lowering the price of a product or service to attract potential customers with a high level of price sensitivity. Related: What Is Predatory Pricing? (Plus a List of Price Strategies) How does this pricing strategy work? If a company uses this strategy successfully, customers may be reluctant to switch to an alternative product brand or service provider when prices return to their normal levels. During this introductory pricing stage, a business has the chance to showcase what it has available to offer customers, and it may develop supplementary programmes to earn the loyalty of customers who choose to try its product or service. The ultimate goal of using this pricing is to keep the purchaser as a loyal customer even when the pricing of the product or service rises after an initial offering. It can help a company rapidly gain new customers and build brand loyalty and awareness, helping to accomplish its business objectives.

Companies may use such a pricing strategy when they develop a new product and release it on the market or when they're entering a new market and want to achieve a sizeable market share quickly.

Penetration pricing is a sales and pricing strategy that focuses on lowering the cost of a product or service that's new to the market to attract customers to purchase it. View more jobs on Indeed View More What is penetration pricing?

Example of penetration pricing