According to your budget, you will probably chose the cheapest one.

This is an inherent nature of the penetration strategy, where you yourself are breaking the customer from another brand and attracting him to your brand.Ĭonsider having 10 kinds of cheese, very similar in quality. Even though they might consider a similar strategy as yours, once you approach the market through a penetration pricing strategy, only the product’s profitability and efficiency can dictate whether they can be successful or not as the focus should be on minimizing unit costs right from the start.Ī drawback of price penetration depends on the kind of customers you are targeting and whether you are looking for brand loyalty in your customers? The penetration pricing might attract the wrong kind of customers, who are more interested in the cheap price focusing on the bargain, rather than the ones who will become loyal to your brand. By setting lower prices than your competitors you also create barriers for the new entrants into the market. When you lower prices, the sales volume increases and market share too may increase. Before you use it, you want to ensure that penetration pricing (or any other price method or strategy) is the best-fit strategy for your business and that it fits your strategic plan.From the marketing objectives point of view, the strategy can lead to very interesting results if we were to look at the increase in market share and sales volumes due to use of penetrative pricing. Remember that market conditions, your customers and your competition do not stand still, strategies will need to be revised, updated, and changed as the business environment changes.Īlso, remember that most strategies - particular pricing strategies - are not a perfect-fit. If not, change to another strategy to see if it fits better. Then, when you're assessing and comparing results to the plan, you can determine whether or not that strategy has been successful for you, or not. Include also the reasons why you are using the specified pricing strategy or strategies and the decision making model you used to make your decision - you want to be able to define why you've chosen the strategy and also what you expect the market response to be. When building your sales plan include the pricing strategy details, in the assumptions section of the plan (if using several strategies include all of that information). This is most successful when used for products that are mass produced and therefore have some economies of scale: you will be ramping production up to launch the new product and therefore your costs per unit should be lower.īest-Fit for Service or Product Segmentation Strategy Why and When to use it: This should be used only if you feel you need a low price to stimulate attention from the market and if you want to hold off or stall competitors from entering the market (they might be scared off at the low margins).

Prices are low to attract attention and buyers. The concept is that the new low, 'introductory' price will entice customers to buy. What it is: A strategy often used when introducing new products to the market or when trying to gain significant market share. This low price model could be used if the market is highly price sensitive (and price elasticity is high) manufacturing and distribution costs are low and the low price you use will discourage new competitors from entering the market and encourage existing competitors to leave the market. You will also have to ensure that your product positioning is 'right' for your targeted market.

You will need to have a strong marketing mix product strategy and have developed unique product differentiation for your product segmentation and market segmentation. You will need to conduct competitive intelligence research and/or refer to the competitive analysis in your marketing plan to gain an understanding of competitive strategy as you need to be able to predict how your competition will react to your pricing strategy. To develop a successful pricing strategy for your small business growth, you need to understand your market, your product (and your product segmentation strategies and objectives) and your competition. In order to be able to set the lowest price, the business must be capable of producing with low costs or have enough capital funds to hold on while prices are low ( my advice: unless you have the lowest costs in the market and/or you have a very big reserve fund, do not use this strategy). Market penetration pricing is a strategy to gain market share (or penetrate the market) by setting the lowest price in the market. Market penetration pricing is used by many businesses wanting a quick entry when marketing a new product or by businesses wanting to grow their share of the market.

Definition of penetration pricing