![]() ![]() Another potential disadvantage is that the low-profit margins may not be sustainable long enough for the strategy to be effective. Both can make it difficult to raise prices later. The main disadvantage of penetration pricing is that it establishes long-term price expectations for the product and image preconceptions for the brand and company. It can generate high stock turnover throughout the distribution channel, which creates important enthusiasm and support in the channel.It discourages the entry of competitors.It establishes cost-control and cost-reduction pressures from the start, leading to greater efficiency.It can create goodwill among the Innovators and Early Adopters, which can generate more demand via word of mouth.The strategy can achieve high market penetration rates quickly, taking competitors by surprise and not giving them time to react. It can result in fast diffusion and adoption across the product life cycle. Firms use penetration pricing which is a mechanism in marketing to get people to try new products or services by first giving them away at a lower price first.The advantages of penetration pricing to the firm are the following: Like skim pricing, penetration pricing shows an awareness of the dynamics in the product life cycle. Why Might Penetration Pricing Make Sense? Penetration pricing offers a lower price in order to draw in higher demand from consumers. So, the corporation must assess the impact of market share from the shifts in the product pricing schedule. The usual target market for price skimming strategies is early adopters for whom price is not a barrier to the products perceived benefits, while the target market in the case of penetration pricing is customers who are very price sensitive and want the same benefits but at a lower price. If the initial price is set low, at $2, for instance, the quantity demanded will be high: 400 units. Market penetration pricing is among the crucial tactics to acquire market share and flourish the earnings, for example lowering the product amount initially to broaden audience engagement. Returning to our economic model, below, you can see that penetration pricing focuses at the bottom of the demand curve. Promoting buy-one-get-one (BOGO) offers for new customers. This might look like: Advertising new client rates and incentives. When you implement market penetration, you enter a market at a low price point and begin to raise prices over time. Penetration pricing is a marketing strategy whereby an organization sets a low price for its product or service to rapidly gain a significant market share. Penetration pricing is most commonly associated with marketing objectives of enlarging market share and exploiting economies of scale or experience. A market penetration pricing strategy is the reverse of price skimming. The strategy works on the assumption that customers will switch to the new product because of the lower price. Penetration pricing is a pricing strategy in which the price of a product is initially set low to rapidly reach a wide fraction of the market and initiate word of mouth. 206 Reading: Penetration Pricing What Is Penetration Pricing?
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