#PENETRATION PRICING OCCURS WHEN PORTABLE#

Unloyal customers – low prices will always attract bargain hunters and customers that are going to leave you as soon as you raise your prices, or another competitor appears with the lower one.Reduce competition – if you can afford lower prices and use this to take over the customers, you can expect some of your competitors to be pushed out of the market since they can’t keep up with your prices.Gaining customers – we live in a price-driven society, and offering products at lower prices will definitely bring some customers.Economies of scale – using this strategy can lead to a high volume of sales that may offset the lower prices.But would it work for you? Here are the lists of the main pros and cons of penetration pricing, to help you make your decision. Is Market Penetration Pricing the Right Choice?Īs you were able to see from our penetration pricing examples, this could be both a good and bad strategy. This led to new companies appearing in the business, accommodating this demand which intensified the price competition, making it almost impossible to increase the price.

#PENETRATION PRICING OCCURS WHEN PORTABLE#

The portable bar code reader revolutionized the industry, and they were soon outrun by demand.

Even though they were aware that they offered some additional value compared to the stationary bar code readers since companies would save time, instead of going with the price skimming or even premium pricing strategy, they decided to offer their product for a rather low price. One famous negative example is the company that created the first portable barcode reader. If you don’t utilize pricing intelligence and fail to understand the market, you might face huge losses. Once its competitors go out of business or Amazon builds firm relationships with customers through its Amazon Prime service, they start gradually raising product prices.Īlthough Netflix and Amazon examples are encouraging and in favor of this pricing strategy, it’s not always easy, and you have to be careful. This way, Amazon is trying to establish itself in new markets, and then push out their local competitors. Lower prices were a good reason for customers to switch from other streaming services, and once they came to Netflix, they stayed because of the quality it offers.Īnother successful example is Amazon, which can allow itself to over very low prices because of the economy of scale. They started with very low subscription fees, gradually raising the prices. This is mostly thanks to their good service and the smart implementation of the penetration pricing strategy. Today, they have 51% of streaming subscriptions in the USA. and 20 years later, they introduced their streaming service. They are a great example of penetration pricing done right. This is a practice in different industries, from food and beverages, where you can find examples from Costco and Kroger implementing the penetration pricing for organic products to streaming services, where Netflix is a perfect example of good practice. Oftentimes utilized by big companies, as they can afford prices barely above the profit margin. You can already guess that it is usually used when a company is trying to enter a new market or push out competitors from the market. Penetration Pricing Strategy ExamplesĪs we already said, penetration pricing is the common way of setting the prices and bearing in mind the rationale behind it. While penetration pricing requires starting with the lowest price possible and eventually raising the price after reaching the goal, the price skimming strategy consists of starting with a higher price and lowering it over time.Īs this pricing strategy requires frequent price adjustments, it is necessary to consider investing in dynamic pricing. Penetration pricing should not be considered with the price skimming technique, as those two are opposite. and even to drive competitors out of the market.try to generate a significant demand to utilize economies of scale.

In this pricing strategy, businesses try to take over customers by picking a price point on (or barely above) the profit margin. Penetration pricing is a pricing strategy businesses implement to gain market share by offering a lower price for a product or service.

Minimum Advertised Price (MAP monitoring).

Penetration pricing occurs when