ºÚÁÏÃÅ

±õ²ÔÌý³Ù³ó±ðÌýever-evolving world ofÌýbusiness, pricing strategy plays aÌýcritical role inÌýdetermining theÌýsuccess orÌýfailure ofÌýaÌýproduct orÌýservice. Penetration pricing isÌýaÌýpricing approach that has become increasingly popular inÌýrecent years, particularly among startups andÌýbusinesses seeking toÌýquickly gain aÌýfoothold inÌýaÌýnew market.

InÌýthis article, we’ll explore penetration pricing, how itÌýworks, andÌýsome examples ofÌýcompanies that have successfully used itÌýtoÌýgrow their businesses. Let’s dive in!

What isÌýPenetration Pricing?

Penetration pricing refers toÌýaÌýpricing strategy inÌýwhich aÌýbusiness sets aÌýlow price forÌýtheÌýproducts toÌýgain market share. The goal ofÌýpenetration pricing isÌýtoÌýattract aÌýlarge number ofÌýcustomers quickly andÌýestablish theÌýcompany asÌýaÌýviable competitor inÌýtheÌýmarket. Penetration pricing isÌýoften used byÌýbusinesses new toÌýaÌýmarket orÌýlaunching aÌýnew product line that finds themselves inÌýneed ofÌýbuilding brand awareness andÌýgaining customer loyalty.

Basis ofÌýPenetration Pricing

isÌýaÌýpricing strategy inÌýwhich theÌýprice ofÌýaÌýproduct isÌýset low toÌýreach aÌýwider market andÌýinitiate promotion. The strategy isÌýbased onÌýtheÌýidea that aÌýlow price will entice customers toÌýtry aÌýnew product, which inÌýturn will create buzz andÌýgenerate positive reviews.

What Does Penetration Pricing Refer to?

Penetration pricing isÌýaÌýstrategy where aÌýcompany sets aÌýlow price forÌýits product orÌýservice toÌýgain market share quickly. ByÌýoffering aÌýlower price than competitors, theÌýcompany aims toÌýattract aÌýlarge number ofÌýcustomers andÌýestablish aÌýfoothold inÌýtheÌýmarket.

Penetration Pricing Strategy

Penetration pricing involves setting aÌýlow price forÌýaÌýproduct orÌýservice, which isÌýtypically lower than theÌýmarket average. The aim ofÌýthis strategy isÌýtoÌýattract aÌýlarge number ofÌýcustomers quickly, which can help theÌýcompany gain aÌýfoothold inÌýtheÌýmarket andÌýbuild brand awareness. Once theÌýcompany has established aÌýcustomer base, itÌýcan gradually increase its prices toÌýclosely match those ofÌýits competitors.

Companies that Use Penetration Pricing

Many companies have successfully used penetration pricing toÌýgain market share andÌýestablish themselves asÌýviable competitors. AsÌýweÌýbriefly mentioned earlier, one notable example isÌýUber, which initially offered prices that were significantly lower than those ofÌýtraditional taxi companies. This allowed Uber toÌýquickly gain market share andÌýestablish itself asÌýaÌýmajor player inÌýtheÌýtransportation industry.

Another example isÌýAmazon, which offered lower prices than traditional brick-and-mortar bookstores when itÌýfirst launched its online bookstore. This allowed Amazon toÌýquickly gain market share andÌýestablish itself asÌýaÌýleader inÌýtheÌýecommerce industry. Below are examples ofÌýseveral companies that have used theÌýpenetration pricing strategy.

Uber

When Uber first launched its ride-sharing service, itÌýoffered prices that were significantly lower than those ofÌýtraditional taxi companies. Over time, Uber has gradually increased its prices toÌýbeÌýmore inÌýline with those ofÌýtraditional taxi companies. Still, itÌýwas theÌýinitial penetration pricing strategy that helped theÌýcompany establish itself asÌýaÌýmajor player inÌýtheÌýindustry.

Amazon

When Amazon first launched its online bookstore, knowing most people preferred buying their books from their local bookstore, theÌýecommerce giant knew itÌýhad toÌýfind aÌýway toÌýencourage users toÌýtry buying online. ToÌýachieve this, Amazon relied profoundly onÌýpenetration pricing. The company started with very low prices which then allowed itÌýtoÌýquickly gain market share andÌýestablish itself asÌýaÌýleader inÌýtheÌýecommerce industry. Today, Amazon continues toÌýuse penetration pricing inÌývarious ways, such asÌýoffering lower prices onÌýcertain products andÌýservices, toÌýattract customers andÌýmaintain its dominant position inÌýtheÌýmarket.

Streaming companies

AsÌýyou can already tell from this section, there are many companies that use penetration marketing, including streaming service companies. Even ifÌýyour business follows aÌýsubscription-based model, you can still choose toÌýgive penetration pricing aÌýtry. There are many streaming services that use penetration pricing strategies toÌýgrow their subscribers byÌýoffering anÌýinitial free trial period orÌýaÌýone week forÌýhalf theÌýmonthly price forÌýexample. This way potential subscribers find themselves eager toÌýsign upÌýandÌýsee forÌýthemselves what kind ofÌýcontent they’ll beÌýgetting forÌýtheir money.

Popular music streaming service Spotify forÌýexample, offers aÌýthree-month free trial ofÌýtheir Premium membership. There are also times theÌýstreaming giant offers deals like four months ofÌýPremium membership forÌýonly $0.99ÌýtoÌýencourage users toÌýtry their paid subscription. With offers like this, users ofÌýtheÌýplatforms immediately feel encouraged toÌýsign up, once again demonstrating theÌýfoundation andÌýsuccess ofÌýpenetration marketing.

From online marketplaces like Amazon toÌýstreaming services like Spotify, theÌýnumber ofÌýcompanies that find this strategy useful isÌýwide andÌýcontinues toÌýgrow. Even banks, online education programs, online course sellers, andÌýairline companies find theÌýstrategy useful andÌýuse itÌýtoÌýincrease their sales andÌýstand out from theÌýcompetition.

Price Skimming vsÌýPenetration Pricing

ItÌýisÌýnecessary toÌýunderstand theÌýdifferences between andÌýpenetration pricing. Price skimming involves setting aÌýhigh price forÌýaÌýproduct orÌýservice when itÌýisÌýfirst introduced toÌýtheÌýmarket. The idea isÌýtoÌýmaximize profits from early adopters who are willing toÌýpay aÌýpremium forÌýtheÌýproduct. AsÌýcompetition increases andÌýtheÌýproduct becomes more widely available, theÌýprice isÌýgradually lowered toÌýappeal toÌýaÌýbroader range ofÌýcustomers.

Penetration pricing, however, involves setting aÌýlow price toÌýquickly gain market share. This isÌýoften used byÌýcompanies new toÌýaÌýmarket orÌýlaunching aÌýnew product line andÌýneed toÌýbuild brand awareness andÌýcustomer loyalty. The aim isÌýtoÌýattract aÌýlarge number ofÌýcustomers quickly andÌýestablish theÌýcompany asÌýaÌýviable competitor inÌýtheÌýmarket. Once theÌýcompany has established aÌýcustomer base, itÌýcan gradually increase its prices toÌýmore closely match those ofÌýits competitors.

Market Penetration Pricing Strategy

Market penetration pricing isÌýaÌýspecific type ofÌýpenetration pricing strategy that involves setting aÌýlow price toÌýenter aÌýnew market. The aim isÌýtoÌýquickly gain aÌýfoothold inÌýtheÌýmarket andÌýestablish theÌýcompany asÌýaÌýviable competitor. This isÌýoften used byÌýcompanies that are expanding into new geographic regions orÌýproduct categories.
One example ofÌýaÌýcompany that has used market penetration pricing successfully isÌýWalmart. When Walmart entered theÌýgrocery market, itÌýoffered lower prices than its competitors toÌýattract customers andÌýgain market share. Over time, Walmart has been able toÌýincrease its prices andÌýmaintain its position asÌýaÌýdominant player inÌýtheÌýmarket.

Advantages ofÌýPenetration Pricing

There are many . Here are aÌýfew,

• High adoption andÌýdiffusion. Penetration pricing enables aÌýbusiness toÌýswiftly gain client acceptance andÌýadoption ofÌýits product orÌýservice.
• Dominance inÌýtheÌýmarket. AÌýpenetration pricing approach generally catches rivals off guard andÌýgives them little time toÌýrespond. The business can take advantage ofÌýtheÌýchance toÌýconvert asÌýmany clients asÌýitÌýcan.
• Economies ofÌýscale. AÌýfirm can achieve economies ofÌýscale andÌýlower its marginal cost since theÌýpricing strategy results inÌýhigh sales volume.
• Improved customer loyalty. Consumers who can get aÌýgood deal onÌýaÌýgood orÌýservice are more inclined toÌýsupport theÌýcompany again. Also, this heightened goodwill generates favorable brand awareness.
• Increased inventory turnover. Vertical supply chain partners like retailers andÌýdistributors are pleased with penetration pricing’s enhanced inventory turnover rate.

Companies that Use Penetration Pricing

Many companies have successfully used penetration pricing toÌýgain market share andÌýestablish themselves asÌýviable competitors. AsÌýweÌýbriefly mentioned earlier, one notable example isÌýUber, which initially offered prices that were significantly lower than those ofÌýtraditional taxi companies. This allowed Uber toÌýquickly gain market share andÌýestablish itself asÌýaÌýmajor player inÌýtheÌýtransportation industry.

Another example isÌýAmazon, which offered lower prices than traditional brick-and-mortar bookstores when itÌýfirst launched its online bookstore. This allowed Amazon toÌýquickly gain market share andÌýestablish itself asÌýaÌýleader inÌýtheÌýecommerce industry.

Conclusion

InÌýconclusion, while price skimming andÌýpenetration pricing are both pricing strategies that aim toÌýincrease profits andÌýgain market share, they differ inÌýtheir approach andÌýtiming. Market penetration pricing isÌýaÌýspecific type ofÌýpenetration pricing strategy that involves setting aÌýlow price toÌýenter aÌýnew market. Many companies have successfully used penetration pricing toÌýgain market share andÌýestablish themselves asÌýviable competitors, including Uber andÌýAmazon. ByÌýunderstanding these pricing strategies andÌýhow they can beÌýapplied toÌýdifferent situations, businesses can make informed decisions about their pricing andÌýpositioning inÌýtheÌýmarket.

Now that weÌýhave covered theÌýbase with Penetration Pricing, you can find two more guides onÌýhow toÌýprice your products!

• Antiques Pricing Guide: Identifying, Appraising, Pricing
• How toÌýPrice aÌýProduct forÌýRetail Business Beginners

Ìý

• How toÌýPrice Your Products? AÌýScience Backed Answer
• Three Pricing Models You Can Implement inÌýYour Online Store
• Penetration Pricing: The Winning Strategy toÌýGet Customers Quickly
• How toÌýCalculate Price Elasticity ofÌýDemand