If you sell goods and services cheaply, you may become known as a cheap bargain brand.Īlthough this is an excellent short-term strategy, it’s not the best pricing technique for the long run. Selling your goods and services can negatively affect the reputation and image of your brand. If you gradually increase prices, you will lose some of your initial customers. If they find a better deal, they’re out the door. Unfortunately, this pricing strategy usually attracts many bargain hunters who will show your brand no loyalty whatsoever. ConsĪlthough people appreciate a good deal and will keep coming back for more, this may only be the case if you keep offering low prices. Time is money, and this reaction time makes a difference.
Competitors usually don’t see this kind of thing coming, and they don’t have much time to react. In other words, if you have a very high inventory turnover, those above you on the supply chain will also be happy and maybe even willing to give you better discounts on bulk orders.Ībove all else, perhaps the most significant benefit is that it allows companies to quickly establish market dominance. Yet another advantage is that penetration pricing allows you to sell your inventory at a fair rate. On that same note, if you are going for an economy of scale with high sales numbers at low prices, this goes a long way in increasing profit margins. This strategy often helps generate a lot of goodwill and trust in a brand because people appreciate it when they can buy goods and services at more than affordable prices, thus creating repeat customers.
One of the most significant advantages is that penetration pricing allows a company to get customers to quickly accept and adopt their new goods and services. Penetration Pricing Strategy: Pros and ConsĪs is the case with really anything, there are both good and bad aspects of penetration pricing. More often than not, a price skimming strategy will include the price slowly dropping over time to become more competitive with the rest of the market. However, it is ideal for luxury brands that want a select number of high-end customers. This is a good strategy if you are not too concerned about getting vast sales from most of the population. Price skimming is about setting the initial cost of a product or service very high, which is an excellent strategy for luxury products that are supposed to be very high-end. There is some confusion between penetration pricing and price skimming, so let’s explain. A good example is how your internet provider tells you that you only pay $20 per month for the first six months, and then after those six months are up, they’ll raise the price. In mostly all cases, this low initial cost will eventually rise, often to the point where it may even cancel out the initial discount. But, again, it’s about getting people to think that they are getting the best deal if they join now. By setting the initial price at a very low level, the hope is that people will not resist such a good deal.
Generally speaking, this is a strategy that many new online businesses use who are looking to rapidly expand, although it is a business model still in use by many larger businesses too.Ī very extreme form of penetration pricing is known as predatory pricing, which involves setting the cost of your goods or services just slightly lower than the next cheapest alternative. What is Penetration Pricing?Ī penetration pricing strategy is a type of marketing and sales strategy that involves trying to get new customers and take customers away from the competition by setting the initial cost of the goods or services at a very low level. Let’s discuss penetration pricing strategy, how it works, what the benefits are, and how you can use this in your online business. The proof is that penetration pricing is a great way to sink your hook into new customers, and it’s why so many are using it. If you are looking for proof that penetration pricing works, look no further than giants such as Netflix and any other service where you get an initial discount. Buying a Website? Let Me Check it for YouĪ penetration pricing strategy is a great way to break through a market and build both awareness and popularity of a brand, service, or product.Buy a Website Business – Purchase An Existing Website!.Professionally Designed Website – Have A Website Built For You!.Building Your Own Website – Do It Yourself.
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