![]() ![]() ![]() There is little point in charging a low price for a product that will last several years (durable good), like a laptop or car.Īs the firm establishes market share it is likely to gain economies of scale, which will increase its profit margin. Profits are lower in the short term, but the high number of early sales compensates for the small margins. With this method, you enter the market rapidly and grow a loyal client base. In addition, firms will normally only use price penetration for non-durable products, such as 'Fast Moving Consumer Goods' (FMCGs) sold in high volumes. Penetration pricing is a strategy where prices are set low to attract new customers and increase the product’s market share. If the product is likely to have a short life, low prices will probably not allow for initial costs (e.g. The expected lifespan of the product will affect the decision to adopt a price penetration strategy. The character of a shopping area may be dramatically altered when the 'big boys' arrive. This is why small retail shops fear the entry of large multiple retailers into their area. Usually, this is done by businesses to gain market share quickly or. If the firm entering the market is large, and/or aggressive, it may put some competitors out of business. Penetration pricing refers to setting a low initial cost for a new product or service. It is expected, therefore, that at some time in the near future the price will rise, so the firm may have a relatively short time to build brand loyalty. This pricing strategy will only be suitable if customer demand is price elastic (responsive to price changes).Īt this relatively low introductory price, the firm may be making a loss and cash flow may be negatively affected. This approach was used by France Telecom and Sky TV. Once this is achieved, the price is increased. This strategy essentially represents a price war. The price charged for products and services is set artificially low in order to gain market share. Penetration pricing introduces customers to a new product at a steep discount, and often at a loss to the merchant. ![]() The price will normally be advertised as a 'special introductory price'. Penetration strategy is the practice of setting an initial price much lower than the eventual standard price. That’s where penetration pricing comes in. The price is deliberately pitched at a low level to build demand and to capture market share from existing products. Penetration pricing is appropriate for new products into a market - those at the introductory stage of its life cycle. 4.7 International marketing - questions.Price elasticity and the product life cycle.It can be used to gain market share relative to your competition - but be careful. Typically this involves pricing lower (and perhaps. Penetration pricing means pricing more aggressively than neutral. Pricing - Absorption cost and full cost pricing Penetration pricing involves setting the price of products with the primary aim of gaining market share.4.3 Product - simulations and activities. ![]()
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