Market penetration pricing is a quick-entry price strategy that assumes low price will gain high sales volume which, in turn, will result in lowering costs. This strategy is used in price sensitive markets. For example, consider the shop for Dvd players; it is a high volume market, it has a high whole of competitors, the costs to produce Dvd players have fallen, and new and/or changing technology allow businesses to rapidly introduce new features and benefits on new models. The businesses that introduce Dvd players quickly, sell high volume at low or inexpensive prices, are following a shop penetration strategy.
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Businesses using shop penetration pricing are commonly trying to penetrate the shop by growing their share of the market. They assume that the bottom price will win shop share. Make sure that if you use this pricing strategy that you test your market, your price sensitivity and your price elasticity or in-elasticity first. Also be sure to do your shop research to gain an understanding of how your competitors will react to this penetration pricing strategy. For example, your low price may cause your competition to lower price, then you will lower your price again, and so on - no one wins with a strategy like this.
But your shop penetration pricing strategy can also be a preventative for new competitors who are inspecting entering the market. When they see how low your pricing is and realize that their margins will be low and the risk of gaining shop share for new entrants is high, they might choose not to enter the market. For your firm to be victorious with this strategy, it must have the potential to enjoy the economies of scale that high volume will bring and be the low cost victualer in the market.
If you are an existing firm and your competitor is following a shop penetration strategy, do a thorough shop research appraisal of your capabilities:
Can you drive your costs down? Can you produce high volume? Do you want to sell your stock at a low price (and hope volume sales will get you both the shop share and the profitability you want)?
If you talk no to any of these questions, don't result this penetration strategy (or at least, consider this strategy very carefully). However, if you are a new firm inspecting this strategy in a new, or scarcely populated, market, focus on how to drive your costs down and your efficiencies up.
Whatever pricing strategy you use, make sure that you specify it in your marketing mix plan and write down the reasons you chose that strategy. Then, at least on an annual basis at the time of your firm plan update, impart your chosen marketing strategy (including your pricing strategy) and ensure it is the right strategy for the stock life cycle, for the shop conditions, for your buyers, and for the competing environment at that time.
learn more store Penetration Pricing - A Quick store Entry Pricing Strategy learn more
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