If you are wondering what penetration price is , carefully read the following guide where we guide you in this regard. When we talk about market penetration pricing we are referring to what you should consider when setting prices . Setting prices can be complicated, but taking into account certain criteria the matter is easier.
Setting prices that can penetrate the market and position the product properly should be the objective after the production process. This is achieved by analyzing certain factors within production, expenses and of course aspects related to competition.Taking into account the basics when setting prices, you can manage a proper balance that will allow you to make a profit, but also to reap customers.
The penetration price is a market penetration strategy that provides a greater possibility of entering a highly competitive niche.The brand loyalty is one of the principles governing the behavior of consumers. In addition to trust, that saying that says “better known good …” so that a customer will rarely venture to try a new brand if they do not have a strong incentive.
This is where comes the price of penetration as a strategy to promote sales in a highly competitive market.The main objective of the market penetration strategy is to achieve a market share at the risk of even generating minimum profits and even monetary losses, as a sacrifice while the objective is covered.The penetration pricing strategy is so aggressive that it has been used even by large, fully established companies to drive new and potential competitors out of the market.
Let’s explore in these brief paragraphs the definition of market penetration price and some benefits and risks of its implementation.It may interest you: List of factors to consider when setting the price of a product
Definition of penetration price
The penetration price is a market penetration strategy by means of which a company seeks to achieve a significant volume of sales in a new or highly competitive location, from the setting of a comparatively low price compared to competitors.
Through the penetration price strategy , the company establishes a target percentage of market share and launches its products at promotional prices, focusing on sales rather than profit margin. Once the target has been met, the company will progressively level its prices relying on the loyalty and trust it has built.
According to the Business Dictionary , the penetration price strategy is based on the assumptions of elasticity of demand, as well as the existence of a potential market large enough to focus on sales rather than profits.
Market penetration price strategy.
A strategy of penetration of the market means setting the price of a product or service as low as possible to facilitate quick sales. It is more likely to be successful in large, growing markets and is often used in new product introductions. A penetration price is generally chosen when the goal of the marketer is to achieve high market share.
In many markets, consumer demand is elastic; in other words, people will buy more of a product the lower its price. A market penetration strategy creates a significant advantage for a firm that can identify and act on this type of price sensitivity. The price of penetration often has the effect of blocking, or at least delaying competition. Additionally, it can help lower unit production costs when manufacturing processes are subject to economies of scale.
If sales volume cannot be built as quickly as projected in response to penetration price, a firm may have trouble recouping its research and development costs. Your overall profits will suffer if you have produced more than you can sell. Additionally, the price of penetration can damage the value of the brand image by suggesting to consumers that it is the cheapest, not necessarily the best. This can unintentionally create a perceptual opportunity for competitors with higher priced goods.
Some of the most successful penetration price professionals are the discount operations of wholesalers, including department stores, clubs, and outlet stores. Particularly in a weak economy, these types of businesses compete much harder on price than on other qualities or benefits. In the general merchandising category, Walmart is a price penetration leader. In the warehouse sector, the Aldi chain has pioneered this approach. Other examples can be found in categories like e-commerce, furniture, and toys.
Price skimming is the clearest alternative for price penetration. It is an attempt to create a perception of exclusivity and value by charging the highest price the market can bear. Many high-tech products, such as smart phones and high-definition televisions, have been introduced at a skim price that is constantly reduced as the novelty of the subject wears off. Another alternative is a status quo price. Users of this strategy choose a price that is identical and close to comparing with the competition. Although not an aggressive approach, the status quo price offers the advantage of low risk.
