Are you preparing to launch a new product?
It is the time to focus on setting the right price for your product to attract the most customers.
Here comes penetration pricing. Then what is penetration pricing, and its advantages and disadvantages?
Here, in this article, I will discuss every aspect of penetration pricing. Let’s find it!
What is Penetration Pricing?
Penetration pricing is a pricing strategy that sets an initially low price for a new product to entice customers to buy.
The idea behind penetration pricing is to keep the consumers away from the market competition by offering them to try a new product at a lower price.
This penetration pricing strategy helps businesses to build product awareness.
Further, this strategy helps the businesses to launch their new product into the market, thus ensuring an entry to the market and maximizing its reach.
Penetration pricing strategy aims to take the market share from the existing competitors.
The goals of penetration pricing are retaining the customers and increasing the price of the product over time.
Initially, low the price helps penetrate the market by getting more attention from the consumers.
So, penetration pricing helps businesses to establish a foothold against strong competition in the initial days.
Price Penetration Examples
Various penetration pricing examples include:
- Cable operators offer low-price packages for the first 12 to 18 months of a contract before increasing the rate.
- Organic food brands offer food products at a lower price than the existing market price.
- Apple Smartphone competitors offer a low-cost alternative to the customers such as Samsung devices, and Android devices.
Advantages of Penetration Pricing
High Adoption and Diffusion
Penetration pricing strategy helps businesses to get their products or services highly acceptable by the customers and adopted by consumers very quickly.
Economies of Scale
The penetration pricing strategy establishes a high sales quantity that enables an organization to realize economies of scale.
Further, to lower the marginal cost of the product or service.
Marketplace Dominance
Penetration pricing is a plus in some cases as the competitors are typically caught off guard and have little time to react.
So, the business can utilize the opportunity to switch over as much as consumers as possible.
More Brand Loyalty
This strategy also has the capability of improving brand loyalty around a new product launch. The initial low price brings in more customers.
If your new product comes with good quality and good value, it can keep those consumers around even when the price increases.
Build relationships With Key Partners
Brands that generate high-scale generally can establish goodwill with their key partners such as wholesalers and retailers.
So, this means that penetration pricing helps you to build a good relationship with your key partners.
Encourage Organic Marketing
When consumers find a good deal in the market, they will convey their message around their circle. This will help your business to generate organic or viral marketing.
Disadvantages of Penetration Pricing
Pricing Expectation
When you set a low price for the launch of your new product, customers may expect permanently low prices.
If prices gradually increase, consumers may be dissatisfied and also may stop purchasing your product and services.
Damage Brand Image
Initially, low prices can affect the brand image, it may cause customers to perceive a poor or low-standard brand.
Low Customer Loyalty
Penetration pricing typically attracts bargain hunters. Also, this strategy attracts consumers with low customer loyalty.
Customers with low loyalty can switch to new brands anytime if they find a better deal. Low prices while effective for the initial sale, truly engender customer loyalty.
Price War
A penetration price may trigger a price war. This may decrease the overall profitability of the market. Your competitors can also reduce their prices.
If they do something like that, you need to further cutting down your price. Your competitors may further cut their prices and so on.
This is not sustainable for you. You must realize that the low price is time-limited.
So, you should concentrate on the time frame. It must be long enough to have an impact on the market but short enough to discourage your competitors from cutting their prices.
Conclusion
Penetration pricing can help a new product to get more purchased by the consumers. Penetration pricing keeps the new entrant away from the highly competitive market.
However, penetration pricing is a short-term strategy and it can help businesses to gain market share and build customer loyalty.
However, besides various advantages, there are a few disadvantages that come with penetration pricing. here, in this guide, I have put together every aspect of the penetration pricing strategy.
You can go through this guide to get more knowledge. You should build a sustainable and relevant business strategy taking help from this guide.
