Penetration pricing strategies do have some drawbacks, however: Sales volumes should be high, so distribution may be easier to obtain The low price can act as a barrier to entry to other potential competitors considering a similar strategy It forces the business to focus on minimising unit costs right from the start (productivity and efficiency are important) Encouraging word-of-mouth recommendation for the product because of the attractive pricing (making promotion more effective) Catching the competition off-guard / by surprise Penetration pricing is often used to support the launch of a new product, and works best when a product enters a market with relatively little product differentiation and where demand is price elastic – so a lower price than rival products is a competitive weapon.Īmongst the advantages claimed for penetration pricing include: However, there are some significant benefits to long-term profitability of having a higher market share, so the pricing strategy can often be justified. In the short term, penetration pricing is likely to result in lower profits than would be the case if price were set higher. This is also known as a market penetration. Market penetration defined as an activity (see the Ansoff Matrix below) is the process of going to market with a product in an existing market in which current or similar products already live and taking market share from the other competing companies. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume. Market penetration definition 2 - an activity. The strategy aims to encourage customers to switch to the new product because of the lower price. 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. The aim of penetration pricing is usually to increase market share of a product, providing the opportunity to increase price once this objective has been achieved. You often see the tagline 'special introductory offer' – the classic sign of penetration pricing.

Penetration pricing strategy