What You Need to Know About Penetration Pricing

Posted on March 6, 2021 by

Penetration pricing refers to a rigorous pricing strategy used by businesses such as tow truck Tysons va or any other business that wants to enter the marketplace, where it offers products and services at an extremely low entry price. The goal of penetration pricing is to disrupt existing businesses by luring customers away from what they are used to, with the promise of a lower price. This strategy requires companies to slash prices to almost below market value and is usually developed by new businesses in a high-growth phase that is prepared to absorb initial losses. The losses are viewed as a necessary sacrifice to gain market share and entice customers away from competitors.

Penetration Pricing Strategy

A penetration pricing strategy might be effective if a business is new or is trying a different marketplace. The goal is to lure customers away from established competitors, build solid brand loyalty and generate demand for what is on offer. If a business is lucky, it might even push competitors out of business. Penetration strategy offers many advantages. New customers will like doing business with you. This is the case because consumers love good deals, and companies offering penetration pricing are often adored and flocked because of their discounts.

There is also another advantage of long-term gains. This is where the economies of scale come into action. Employing penetration pricing will net high volumes of sales that may offset the lower price tag. Additionally, there is the benefit of market disruption. Offering products and services at low prices gives a new business opportunity to disrupt the market and establish itself as the leader. Customers will begin to wonder why they have been paying so high for the same products and services and give you the benefit of becoming their de factor place to do business.

Penetration pricing also comes with its fair share of cons. In the long run, you will need to raise your prices to stay in business, and doing so might lead to customer dissatisfaction and churn. Additionally, it may lead to a loss of brand value. When you price and market yourself like a discount brand, you will earn a lot of business. But people will start to think of you as a discount brand and this may cause pushbacks the moment you start to price your products higher.

The gamble of implementing a penetration pricing strategy is what your competitors might retaliate. A pricing war will lead to decreased profitability for the market as a whole and this will ensure no one benefits, apart from the customer. You also suffer the danger of inability to raise prices. There is also the chance that when you try to raise prices on your customers, they will not accept the change and may decide to do business elsewhere.

There is a couple of brands that have established themselves but were started on penetration pricing strategy. Notable of them include Netflix, Gillet as well as a couple of internet and cable providers.

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