Penetration Pricing

Introduction

Penetration pricing strategy involves the firm entering a market with a low product price. The aim of penetration pricing is to gain market share and sales over a period of time. The firm may later decide to increase their prices at a later stage.

What Are The Benefits Of Using A Penetration Pricing Strategy?

• Penetration pricing allows a firm to gain market share and profit quickly.
• Penetration pricing will help the firm towards reaching their objectives.
• Penetration pricing creates attention for the firm because the low entry price may be talked about within the industry.
• Penetration pricing helps attract customers because of the low entry price.
• Penetration pricing means a business will have to focus on being a cost leader. Cost must be driven down if the price is to maintain low for the consumer.

The Drawbacks Of Penetration Pricing

• Consumers may expect prices to remain low, and react in a negative way should prices increase.
• Penetration pricing has a danger of starting a price war.  Price wars are dangerous because they can erode away at company profits.

Conclusion

Penetration pricing strategy is a popular strategy used by companies to gain market share. It allows the company to gain market attention and helps drive sales to the organisation,