Market penetration pricing strategy

Market penetration pricing strategy

Many high-technology products, like smart phones and high-definition televisions, have been introduced at a skimming price that is steadily reduced as the item's novelty wears off. These sales can also be an example of penetration pricing. Although the low prices make each sale less profitable, the high volume results in lower costs and allows Ikea to maintain a healthy profit margin. Cons of Penetration Pricing Of course, every pricing strategy has its drawbacks. This approach also opens a wider range of consumers up to the Android marketplace, while Apple embraces a skimming strategy, providing high-cost products that skim a small market share off the top. This way, the company skimmed off the maximum amount of revenue from the various segments of the market. See if it's right for your Penetration pricing is the pricing technique of setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers. A starter product is sold at a very low price but requires more expensive replacements such as refills which are sold at a higher price.

Other utility providers also rely on penetration pricing. Limited Timeframe Even if market penetration pricing does work as intended, businesses should be aware that the strategy will only be effective for a limited period of time.

The objective of this approach is to generate an optimal volume of sales transactions based on the customer's perception of value. In the general merchandise category, Walmart is a leader in penetration pricing.

neutral pricing

As sales volume increases, companies can turn over inventory more quickly. The pricing strategy was so effective that traditional providers such as Blockbuster soon were edged out of the market.

Economy pricing

A Friday night trip to a video or DVD rental shop was a family tradition across the nation for at least a generation. This marketing strategy relies on the idea of low prices making a customer aware of a new product. In the general merchandise category, Walmart is a leader in penetration pricing. The strategy aims to encourage customers to switch to the new product because of the lower price. Low prices act as a barrier to entry see Porter's 5-forces analysis. It discourages the entry of competitors. Many companies inventing new products set high initial prices in order to skim revenues layer by layer from the market.

Businesses that are considering this technique, however, should be sure they have a solid promotional strategy in place. However, there are some significant benefits to long-term profitability of having a higher market share, so the pricing strategy can often be justified.

Standards carry heavy momentum. Compare Investment Accounts. They are selling the organic foods at lower prices. The product will face stiff competition soon after introduction.

There is not enough demand amongst consumers to make price skimming work. Another potential disadvantage is that the low profit margins may not be sustainable long enough for the strategy to be effective.

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5 of the Best Penetration Pricing Examples