![]() The purpose of penetration pricing is not to simply offer a very low price it is to most effectively take market share. Though easier said than done, the goal of a pricing strategy is not to get into a spiraling competition with another company. Therefore, the most successful penetration pricing strategies rely on broader markets with more exposure where a single penetration pricing strategy can have the greatest effect. If there is not a large market for a product, it often is less important the price of the good because there are less consumers to capitalize and attempt to retain. Penetration pricing is most effective when there are goods in high demand. In order for a penetration pricing strategy to work, it must often meet the following criteria or adhere to the following guidelines. Penetration pricing is just the first step to a long-term plan to attract, convert, and establish relationships with new customers. a deal whenever a customer switches from a competitor). ![]() an offer for this weekend only) or embedded into the company's long-term strategy (i.e. Penetration pricing may be temporary (i.e. Once a company has attracted customers via penetration pricing, it often changes strategy to create brand loyalty, convert customers into long-term consumers, and drive competitors out of the market. Because its brand is not yet known, it must rely on favorable pricing to differentiate itself from other, more established market participants. New entrants often use penetration pricing strategy to quickly steal a portion of the market share. Once a purchase has been made ideally, an email or contact list is created to follow-up and offer additional products or services to the new customers at a later date. However, the key to a successful campaign is keeping the newly-acquired customers.įor example, a company might advertise a buy-one-get-one-free (BOGO) campaign to attract customers to a store or website. Additionally, a higher amount of sales can lead to lower production costs and quick inventory turnover. It can often increase both market share and sales volume. Penetration pricing, similar to loss leader pricing, can be a successful marketing strategy when applied correctly. offering a new cell phone) in exchange for a long-term agreement (i.e. Companies often entice customers with unprofitable strategies (i.e. ![]() Penetration pricing comes with the risk that new customers may choose the brand initially, but once prices increase, switch to a competitor.Elastic goods are the best types of goods for penetration pricing as small changes in price often lead to large changes in demand.The lower price helps a new product or service penetrate the market and attract customers away from competitors. ![]()
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