Penetration pricing

Business Management

Penetration Pricing

Introduction

Penetration pricing is a pricing strategy where a business initially sets a lower-than-average price for a product or service when entering a new market. The primary objective of this strategy is to quickly gain market share and establish a foothold in the market. Once the product becomes established, the price may gradually increase to align with market norms.

Key Points

• Penetration pricing involves setting an initial price that is lower than those offered by competitors in the same market segment. This lower price is designed to attract customers and encourage them to choose the new product or brand.

• The primary goal of penetration pricing is to capture a significant share of the market quickly. By offering a lower price, the business aims to entice customers away from existing competitors and gain a strong market presence.

• While penetration pricing can drive sales and market share growth, it often results in lower initial profit margins. Businesses may accept lower profits in the short term to achieve long-term market dominance.

• Penetration pricing is typically not a permanent pricing strategy. Once the product has gained traction and established its market presence, the business may gradually raise prices to bring them more in line with the market average.

In summary, penetration pricing is a strategy where a business initially offers a product at a lower price than competitors to quickly capture market share. While this approach may sacrifice short-term profits,