Whereas, brands using penetration pricing intend to gain a large market share by selling more volume of products at low prices. The introductory trial price runs from one month to a year, thereafter it goes full price. In both these strategies, low prices act as a stimulus to attract customers to buy a newly launched product. There is a very subtle difference between introductory pricing and penetration pricing. The brand sold its mechanical razor below cost price to stimulate customers to buy higher profit-generating replacement blades. This strategy of killing two birds with one stone was very cleverly implemented by Gillette. In this strategy, they sell one of the items at a loss and entice customers to buy their highly-priced complementary product. Loss leader pricing is used at any phase in a product’s lifecycle but only brands that have two complementary products can use this pricing. 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. The penetration pricing strategy is exactly the opposite. ![]() It shows the price reduction of 9 different models of Samsung phones over 41 months since their launch. This line graph is a classic example of price skimming. Therefore, skimming is a commonly used pricing strategy. As soon as a product launches, competitors introduce products with similar features. Car brands and tech-related products are highly competitive sectors. Unlike prestige pricing, in skimming, the price is reduced a few months after its launch. In both strategies, products are launched with a high price tag. The price skimming strategy is similar to prestige pricing. In one of our earlier articles, we explored prestige pricing, a strategy in which a premium price is set for a product to give an impression of high quality and desirability. If your business goal aims to achieve any of the following or a combination, then a penetration pricing strategy may work for you. Such products are sensitive to price variation and have high mass appeal and aspiration value. Penetration pricing suits products that are price-elastic. The ultimate goal of such brands is to develop long-term loyalty among customers. After capturing a sizeable market share, the price is then steadily increased. By offering the lowest price in its category, the product intents to sell maximum volume. ‘Penetration Pricing’ is a short-term marketing strategy, that brands try in the initial phase to increase market share. Industry Examples of Penetration Pricing Strategy.Another potential disadvantage is that the low-profit margins may not be sustainable long enough for the strategy to be effective. Both can make it difficult to raise prices later. The main disadvantage of penetration pricing is that it establishes long-term price expectations for the product and image preconceptions for the brand and company. It can generate high stock turnover throughout the distribution channel, which creates important enthusiasm and support in the channel.It discourages the entry of competitors.It establishes cost-control and cost-reduction pressures from the start, leading to greater efficiency.It can create goodwill among the Innovators and Early Adopters, which can generate more demand via word of mouth.The strategy can achieve high market penetration rates quickly, taking competitors by surprise and not giving them time to react. It can result in fast diffusion and adoption across the product life cycle.The advantages of penetration pricing to the firm are the following: Like skim pricing, penetration pricing shows an awareness of the dynamics in the product life cycle. Why Might Penetration Pricing Make Sense? Penetration pricing offers a lower price in order to draw in higher demand from consumers. If the initial price is set low, at $2, for instance, the quantity demanded will be high: 400 units. ![]() Returning to our economic model, below, you can see that penetration pricing focuses at the bottom of the demand curve. Penetration pricing is most commonly associated with marketing objectives of enlarging market share and exploiting economies of scale or experience. The strategy works on the assumption that customers will switch to the new product because of the lower price. Penetration pricing is a pricing strategy in which the price of a product is initially set low to rapidly reach a wide fraction of the market and initiate word of mouth. ![]() 206 Reading: Penetration Pricing What Is Penetration Pricing?
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