Penetration pricing

(noun)

The introductory stage of a new product's life cycle means accepting a lower profit margin and to price relatively low. Such a strategy should generate greater sales and establish the new product in the market more quickly.

Related Terms

Examples of Penetration pricing in the following topics:

  • New Product

    • Penetration and skimming are two strategies employed in pricing new products.
    • What price level should be set in such cases?
    • Two general strategies are most common: penetration and skimming.
    • Penetration pricing in the introductory stage of a new product's life cycle involves accepting a lower profit margin and pricing relatively low.
    • Compare penetration and skimming as two strategies for setting a price level

  • Demand-Based Pricing

    • When a company sets an initially low entry price (lower than the eventual market equilibrium price) to attract customers, they are engaging in penetration pricing.
    • Penetration pricing is used when the marketing objective is to increase market share/sales volume.
    • These include: price skimming, price discrimination and yield management, price points, psychological pricing, bundle pricing, penetration pricing, price lining, value-based pricing, geo and premium pricing.
    • Penetration pricing is the pricing technique of setting a relatively low initial entry price, often lower than the eventual market price, to attract new customers.
    • Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term.

  • The Marketing Mix

    • Price: Prices for such products may be a little higher than conventional alternatives.
    • The price is the amount a customer pays for the product.
    • There are various strategies that can be applied when pricing a product like skimming and penetration pricing.
    • Skimming means to price the product highly to increase profits.
    • Penetration pricing can be applied when you want to enter a market and price your product lower than the perceived market price so that more people will buy it and this will increase your market share.

  • Economic Indicators

  • The Benefits of a Good Brand

    • Brands should reflect more than mere differential of product cost versus selling price.
    • From the perspective of brand owners, branded products or services also command higher prices.
    • Benefits of good brand recognition include facilitating of new product acceptance, enabling market share penetration by advertising, and resisting price erosion.

  • Importance and goals of competitive intelligence

    • Competitive threats may come from a number of different sources, including new entrants, substitutes, competitors, and even suppliers in the form of a price increase.
    • For example, a trucking company might plan for an escalation in fuel prices.
    • The trucking company can do this in various ways, but the most common is to "buy" a contract that guarantees the firm the right to purchase fuel at a fixed price for some specified period of time.
    • Should fuel prices increase during the period the contract is in effect, the trucking firm is protected by its fuel contracts.
    • This process is known as market penetration.

  • Competition-Based Pricing

    • Competitive-based pricing occurs when a company sets a price for its good based on what competitors are selling a similar product for.
    • Competitive-based pricing, or market-oriented pricing, involves setting a price based upon analysis and research compiled from the target market .
    • For instance, if the competitors are pricing their products at a lower price, then it's up to them to either price their goods at a higher or lower price, all depending on what the company wants to achieve.
    • One advantage of competitive-based pricing is that it avoids price competition that can damage the company.
    • Status-quo pricing, also known as competition pricing, involves maintaining existing prices or basing prices on what other firms are charging.

  • Demanding a Premium

    • Firms can engage in premium pricing by keeping the price of their good artificially higher than the benchmark price.
    • Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price.
    • A premium pricing strategy involves setting the price of a product higher than similar products .
    • It is also called image pricing or prestige pricing.
    • Luxury has a psychological association with price premium pricing.

  • Status-Quo Pricing of Existing Products

    • Status quo pricing is the practice of maintaining current price levels that other firms are charging.
    • Price-Quality Effect: Buyers are less sensitive to price the more higher prices signal higher quality.
    • Status-quo pricing, also known as competition pricing, involves maintaining existing prices (status quo) or basing prices on the prices of competitor firms .
    • Status-quo pricing, also known as competition pricing, involves maintaining existing prices or basing prices on what other firms are charging.
    • Compare Nagle and Holden's nine laws of price sensitivity with status-quo pricing

  • Pricing

    • confirming the impact the corporate strategies should have on pricing policy
    • (TT Nagle, The Strategies and Tactics of Pricing, Prentice-Han, Inc.
    • Englewood Cliffs, N.J., 1999. ) Price sensitivity reduces:
    • A gray market comes about when individuals buy products in a lower-priced country from a manufacturer's authorized retailer, ship them to higher-priced countries, and then sell them below the manufacturer's suggested price through unauthorized retailers.
    • Questions to consider are: What currency should a company price its products?