Penetration pricing is the pricing strategy where the organization introduces its products or services to its customers at a comparatively lower price than the existing market price. The basic objective of marketers is to attract new consumers to try their product in order to create a liking for the same and thus increase their desire to use the product.
So, penetration pricing works on the principle that the price sensitive customers will switch to new brands because of its low pricing. Thus, it helps in increasing sales and volume of the product and hence its market share rather than short term profits.
The idea behind penetration pricing is to generate sales among consumers who look for bargains. Such products are good in quality but are not exceptions to compete with its existing competitors.So, once when the consumer starts liking the product, gradually the price is increased.
During this process of price hike, organizations make it a point to not loose their consumers because of increased prices. And finally when the price is increased as desired without loosing its customers, the set price is identified as the standard retail price of the product.
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Price Penetration Is Generally Adopted By Marketers When
There is huge demand
There is probability of stiff competition
Product demand is highly price sensitive
New organizations want to penetrate and attract the market for its new products
Older organizations want to discourage new competitors from entering into the market
Elite market is small—that is people willing to pay high price for its products are smaller in population
Therefore, penetration pricing is an easiest way of capturing maximum market share by increasing its sales volume .However ,since the mass market is price sensitive ,so its important to test market and study its price elasticity. In addition to this, it’s also important to study and understand the competitor’s strategy for penetration pricing.
Thus Penetration Pricing Helps In
Achieving goodwill among early adopters and which further helps in creating more consumers through their word of mouth
Achieving greater and faster sales and volume and hence larger market share
Decreasing the probability of new competitors from entering the market
Increasing the product performance efficiency because of low cost pressure