A penetration price strategy how to#

Selling a product at a high price and sacrificing high sales to gain a high profit is therefore “skimming” the market. Skimming involves goods being sold at higher prices so that fewer sales are needed to break even. A penetration strategy would generally be supported by the following conditions: price-sensitive consumers, opportunity to keep costs low, the anticipation of quick market entry by competitors, a high likelihood for rapid acceptance by potential buyers, and an adequate resource base for the firm to meet the new demand and sales.It can be based on marginal cost pricing, which is economically efficient.This can create critically important enthusiasm and support in the channel. It can create high stock turnover throughout the distribution channel.It discourages the entry of competitors.It creates cost control and cost reduction pressures from the start, leading to greater efficiency.This can create more trade through word of mouth. It can create goodwill among the early adopters segment.This can take the competitors by surprise, not giving them time to react. This can achieve high market penetration rates quickly. It can result in fast diffusion and adoption.The advantages of penetration pricing to the firm are the following: 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 strategy works on the expectation that customers will switch to the new brand because of the lower price. 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.

Such a strategy should generate greater sales and establish the new product in the market more quickly. In the introductory stage of a new product’s life cycle means accepting a lower profit margin and to price relatively low. Two general strategies are most common for setting prices: penetration pricing and skimming Penetration Pricing With a totally new product, competition does not exist or is minimal.

A penetration price strategy how to#

So how do organizations decide how to price their goods and services? New Product Pricing Pricing decisions are extremely important. They must feel they are getting value for the price paid. Price is the only marketing mix variable or part of the offering that generates revenue.