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All About Penetration Pricing

There are many business strategies that are known and well-utilized by most organizations in the market and one of these strategies is Penetration Pricing. Hence, it is quite a must for businesses to develop and follow strategies in order to cope up with the strict competition of the business world.

Penetration Pricing is a strategic move where a certain product of an organization is introduced to the market in an undeniably lower price value compared to the regular prices of this product in the market.  One of the main goals of this strategy is to attract buyers or consumers to try this new product and likewise to promote it to the users in order to increase its demand. It believes in the principle that consumers or users will switch to a newer product in the market given that it has a lower price value. Thus, Penetration Pricing is commonly used as a strategic move by organizations who are aiming to join a new market, increase the volume of sales, and as well as earn a long term market share.

It is a strategy also used for quickly accomplishing a large volume of income in sales and likewise a strong penetration of the promoted product.

What is Penetration Pricing

Penetration Pricing

Penetration Pricing ideas involves that consumers will go to products with bargains given also that this certain product is good in quality.  By doing this, the organization will be able to largely promote their product and create a demand from the consumers. And when the demand for this product rises, the organization will be able to increase also its market price.  A price hike will then likely happen; hence the organization will make sure that even if they increase their product’s price, they will still not loose their consumers.  After the organization has overcome this stage in penetration pricing, they will be able to set the price of their product on the standard retail market price of it.

 This strategy is only feasible if it is sure that the demand for that certain product is highly elastic that consumers will be attracted to buy more of the product due to its undeniably lower price.

Hence, a fact to consider though before this strategy is implemented, the organization must make sure that supplier of the product has a stable capacity to meet the expected increased demand in the product.

Penetration Pricing also has its drawbacks.  One of its potential drawbacks includes that competitors might also lower their product prices, hence this will likely nullify your strategic pricing.  Another drawback is that due to the low market price of an organization’s product, the consumers will have second thoughts of the quality it is offering.

Penetration Pricing may have its advantages and as well as its disadvantages. And it is undeniable that it is fastest way for an organization to acquire a larger market share due to its increased sales. But a precautionary measure that every organization should do is to test market and study the price elasticity of the product first because this strategic may likely lead to a sensitive market price of the product. Hence, every organization planning to use Penetration Pricing as their strategic plan should also take into consideration what their competitors will do to counterpart Penetration Pricing.

Penetration Pricing

Penetration pricing is a strategy used by marketing reps within a company to get new customers in the door and convince them to be loyal.

Penetration pricing is a marketing strategy used by companies who sell products to other companies or to the general public. The product they are doing the penetration pricing on is usually a brand new product on the market that needs some recognition and backing. Once it has the backing and the name or brand recognition, then the strategy will change.

What penetration pricing is, is a low price set on something. The price is so low, it might actually have the company losing money at first on it. The goal of having the low price is to gain instant attraction to the item, by having people buy it in large quantities and trying it out.

Penetration Pricing

The Penetration Pricing

Once the initial recognition is there, then the company hopes that the buyer will remain loyal to the product for a few different reasons. The first reason being the low price. The price might start to slowly creep up and the recognition of the product grows, but the initial low price is what attracted people to it, got them hooked on it, and now they will pay any price to remain loyal to the product they now love.

The second reason penetration pricing is used by marketing officials is because it detracts away from any competitor’s products in the same category. A big difference in price will have people grabbing the lower priced item off the shelf, which places it in the hands of the desired customers. Half of the battle in the product wars is getting the product to people, so now that they have it in their hands, marketers work at keeping them to buy the same product and other new products within the brand name.

The third reason penetration pricing works is because it generates buzz about something. If you find a great deal on something, what is one of the first things you usually do after you try out the product? You usually tell someone else about it. That results in word of mouth advertising that is positive for the company. If you put up a post on Facebook about your great find and the product you use, you are now even helping the company to sell their own product.

Penetration pricing

Is used in highly competitive markets, such as for electronics, video gaming systems and even for other products that aren’t electronic. That is why, for example. Sony posted a loss for the company after the Playstation 3 was released. They made have sold hundreds of thousands of units, but it was at a price meant to lure people away from other gaming systems and become a fan of theirs. They were looking at long term profits, from when people started to buy additional games down the road instead of for other gaming systems. They wanted to lure people away from other popular systems (Penetration pricing) and priced their product accordingly, knowing it would not return on their investment right away.