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 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.