penetration pricing advantages and disadvantages

#Penetration pricing advantages and disadvantages how to#

They may face low profitability, which can cause them to struggle with covering their production costs. Selling products at a lower price can be challenging for smaller businesses. Related: What is predatory pricing? (Plus effects and alternatives) Insufficient production funds For instance, offering a 20% discount instead of cutting the price in half initially. Although there's no easy solution that could prevent this, setting lower but still reasonable prices can help. A situation like this is dangerous for new brands, as the only businesses that can easily handle such financial challenges are well-established brands. This could lead to the decrease in the market's overall profitability. When a company with significant market presence chooses to lower the initial price of its new products, it can trigger a price war within that market. Related: What is value-based pricing? (With examples and benefits) Price wars To consider this strategy, it's essential to make sure it wouldn't hurt the brand's relationship with existing clients.

When those brands would suddenly decide to adopt penetration pricing methods, their recurring customers could see their goods as low quality products.

It's especially risky for premium and luxury brands, which customers naturally perceive as expensive and fully accept how much they charge for products. Potential damage to brand imageĪgreeing to set low prices for new products can hurt the brand's image. It's also necessary that the product meets customer expectations regardless of its price point. To avoid it, this pricing method usually requires meticulous and long-term planning. This can happen when customers make purchasing decisions when the price is lower, but when it rises, they begin noticing that the product isn't worth more than what the brand charged for it initially. Penetration strategies sometimes result in poor customer experience. Learning about the following drawbacks is critical, as it helps you decide if you want to use this pricing method: Poor customer experience Just like any strategy or method, this pricing technique has its limitations. New companies can also successfully build their following during this time. Although this changes as soon as the brand increases its prices after a fixed period, handling little competition during the first few weeks after launch is likely to boost their sales. Typically, it's impossible for many brands that operate normally to compete at that lower price point. Reduced competitionįor the duration of the campaign, companies that choose to lower their prices initially have less competition. As a result of WOM marketing, companies can generate more revenue without increasing their costs of advertising. Through sharing how great and cheap it is, they're likely to convince them to buy it as well before the price rises. Word-of-mouth (WOM) marketing occurs when existing customers tell their friends and networks about a product.

Then, marketers can focus on building customer loyalty rather than continuously fight for new audiences' attention. This is beneficial for companies because their products can penetrate the market quickly and build brand awareness for the business. Penetration pricing can be highly effective for some brands because it allows them to generate serious customer interest. Here are some key advantages of using this marketing technique: Increased customer interest

#Penetration pricing advantages and disadvantages how to#

When you know it how to use it effectively, penetration marketing strategy can help you market products and gain interest of new customers who'd potentially stay with the brand long-term. Related: Marketing mix pricing strategies: definitions and examples Benefits of using penetration pricing As a result, these customers are less likely to go to the competition because they can pay less for a product of the same quality. This makes the price appear more attractive to customers because they'd normally expect to see a more typical, higher price. When using this strategy, marketing teams agree to lower the price of a product for a fixed period after its launch. Using this strategy is common for campaigns that introduce a new product to an already competitive market.

View more jobs on Indeed View more What's a penetration pricing strategy?Ī penetration pricing strategy, sometimes referred to as predatory pricing, is a marketing technique that consists in offering customers a lower price initially.