How to use penetration pricing strategy most effectively

by Souvik on 25/06/2018
Pricing strategy
When it comes to introducing a new product or brand to a highly competitive market, penetration pricing strategy can work wonders. Used generally by late entrants to a market at any given point of time, this pricing technique helps in creating an immediate market impact. Before you get started, here’s a lowdown on penetration pricing for you:

It is the practice of pricing products lower than standard market rates to attract consumers. A prominent lecturer at the Management Science at Lancaster University Management School rightly said that a penetration strategy is the price war; this strategy goes for the deepest price cuts driving at every moment to have your price be the lowest on the market.

What is the primary objective of this model?

This model will help you gain a larger market share and improved sales volume as compared to your peers. This not only improves your business prospect, but also negatively impacts your competitors. Though ideally suited for saturated markets, penetration pricing can also work in other situations. Using this model for a relatively new market can force competitors to avoid launching similar products.

Who should your target audience be?

Consumers looking for the best bargain are perfectly suited for this model of pricing. However, it is difficult to allure the loyal customer base of competitors by offering a lowered price. You’ve to factor in the trust component of your brand in order to have customers buy your products at lowered rates.

How does it affect revenue?

Pricing your products lower than market rates will naturally reduce your profit margin. However, the increase in sales volume can play a balancing factor in this regard. The final effect on revenue will completely depend on the profit margin that you choose to have. A fair bit of counsel, this model works best with established brands that enjoy some market credibility. Startups might find it somewhat difficult in achieving the sales volume required to avoid a loss.

This model can be tricky for brands that fail to get their strategy correct. From product selection to exact pricing to proper marketing, multiple factors have a role to play in the final outcome. Things to remember before opting for penetration pricing strategy are:

· Choose the product that is essential and likely to be used by the mass.

· Make sure your target audience is aware of the benefits associated with the product.

· Have a full-proof marketing strategy at hand for immediate impact.

· Keep a close watch on your competitors.

How to go ahead with the pricing?

It is always a good idea to have the reduced price as an introductory offer. By showing the discount, you will be able to ask for the actual selling price when the product achieves a certain level of popularity. The duration of the discounted campaign should depend on the situation, competitor study, and market dynamics.

On an ending note

Pricing is one of the key factors that determine the success of a product. Penetration pricing is a strategy that has been used by companies across the globe to enter a saturated market. By keeping the price lower than market standards, brands are able to create immediate impact with enhanced sales volume. If you are planning to launch a new product or brand, you may want to give this unique strategy a try. If you register on Amazon, the in-house team of industry experts will guide you through each stage of developing your pricing strategy to ensure that you make the most out of your venture. Sell better, sell smart with Amazon today.
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