Introduction And Meaning Of Penetration Pricing
Penetration pricing refers to a short term marketing strategy where firms
set a low price for their products. It is just opposite of price skimming
(in which companies charge highest initial price for a new product or
service). In this pricing strategy firms sell the products at a lower price
than the price of competitors' products. The main purpose of penetration
pricing is to attract more customers and capture market share as quickly as
possible.
Objectives Of Penetration Pricing
The main objectives of penetration pricing can be pointed as follows:
1. To Make Easy To Enter The Market
Because of low initial price of the product it makes easier for the company
to enter the market. It helps the firm to compete with existing companies in
the market.
2. To Capture The Market Share
Penetration pricing attracts the large number of potential customers and
encourages them to buy the products. It helps to increase the demand
of the firm's product. Therefore, it helps to increase sales and capture the
market share in a short period of time.
3. To Enjoy The Benefit Of Economies Of Scale
As we know that penetration pricing helps to increase the sale, firms also
increase the volume production to meet the market demand. Increased
production leads to decrease in the per unit cost of the product. Company
can enjoy bulk discount from suppliers while purchasing raw materials.
Therefore, firms can get economic advantage.
4. To Raise Trust, Awareness And Loyalty
Another objective of penetration pricing is to build brand awareness and
loyalty. When a firm supplies quality goods in low price it helps to build
trust and brand loyalty.
5. To Maximize Profitability
This pricing strategy is temporary and overtime, firm increases the price
of the product after gaining customers trust, that maximizes the
profitability of the firm.
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6. To Create Barrier For New Entry
When a firm apply this method, it makes difficult for the new companies to
enter the market. So, it is useful tool to create a barrier for new
entrants.
7. To Become A Market Leader
Because of low price, attraction of large number of customers and brand
awareness, it helps to switch customers from other competitors in the
market. Therefore, it helps the firm to become a leader in the market in a
short period of time.
