Market Penetration: Pricing Strategies in Marketing Blog

Early adopters and brand fanatics gladly paid premier prices for Sony’s newest release. Sony lowered the price of its previous PlayStation products over time. Penetration pricing also helps attract new users, introduces brands to a market, competes with market leaders, and helps in acquiring market share. Often, the strategy is paired with price monitoring software for optimal timing and performance. Nike, a serial manufacturer and retailer of shoes and clothing, applies price skimming to popular trainer releases. This is done by charging premium prices for new products and limited releases.

Higher the sales, higher is the overall profit and market share for the company. A customer’s decision to buy is informed by various criteria, including the product’s price, quality, availability of other brands, and consumer interest in those products. One of the most crucial elements of the marketing mix is the price at which a product is sold. Penetration Pricing can be described as a pricing method adopted by the firm to attract more and more customers, in which the product is offered at low price at the early stage. Conversely, skimming pricing is used to mean a pricing technique, in which high price is charged at the beginning to earn maximum profit.

What does price penetration mean?

On the other hand, price skimming is the strategy where you leverage luxury or high ticket brands in maximising profit margins. Rather than set a low price for products, companies using price skimming will have a high price tag on their products. Skimming is common where you enjoy high brand loyalty and recognition or your products have a significant differentiation from your competition. Now you know why Apple charges a relatively high price for innovative and new products but still have their customer base intact.

• Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007.
• However, sticking with the positives, when used well, a penetration pricing strategy helps a business successfully penetrate the market with their low prices.
• Hence, the manufacturer should set the price of the chocolate bar at around £5.
• With skimming, your overall understanding is reduced because you don’t read everything.
• Beginning businesses have a better chance of turning a healthy profit.

You can, through different price comparison tools, get access to this type of knowledge. This tool can also provide you information on different competitors selling the same type of products as you. As explained, your firm must prioritize its price position in the market. It is especially an advantage if you are planning to expand to new areas.

Purpose Of Penetration Pricing Serve

Influences perception of price – Penetration pricing is an excellent way of influencing the price of your brand or product from the start. You can build an image around your product value influencing how consumers see your brand with strategic marketing campaigns. However, skimming pricing is utilized when product demand is inelastic. The most elastic goods are often the most successful with penetration pricing.

Which of the following Penetration Vs Skimming Marketing Strategies should TeleToys follow if it wants buyers to perceive its products as unique? What’s more, Netflix also operates a type of ‘packaging penetration’ to break their streaming service into the consciousness of new users and customers. What that means is that Netflix is often bundled into plans for free or discounted rates with internet providers, phone plans, or even in combination with other streaming services. Craft and launch a new marketing campaign that promotes your product line in a new and unique way that customers have not seen before.

Penetration- or skimming pricing can expand your business – PriceShape

Whether a company is a service company, retailer, or manufacturer, all types of companies can offer penetration pricing strategies. In a high/low pricing strategy, a single product is offered at a discounted price to attract customers to the business. The business then tries to recover costs and earn profit by selling other non-discounted products that consumers may want to buy. The company then systematically reduces a product’s price to match competitors’ pricing. You can segment your customer base with different marketing strategies at each price level.

Here, £5 is the target profit pricing as the price was calculated using the target profit. But, if you’re truly innovative and nothing can replace you in the market skimming pricing is the way to go for you. Skimming pricing is the opposite of penetrating, it involves setting high prices in the beginning and slowly reducing them to attract more people.

How to Price Items in a Store

If the sponge’s price is low enough, consumers will flock to the new product. Competitors who can’t produce and promote sponges for such a small profit will avoid the market, freeing the sponge company to maximize brand recognition and goodwill. Penetration pricing is a marketing strategy used by businesses to attract customers to a new product or service by offering a lower price during its initial offering. The lower price helps a new product or service penetrate the market and attract customers away from competitors.

Additionally, a considerable sum is spent on advertising efforts, which also increases the price. However, high product prices will readily enable manufacturing and marketing costs to be recovered. Yes, penetration pricing is a valid strategy is that is used to temporarily offer lower prices to attract a customer. There is nothing unethical or illegal about it, though there are very strong considerations a company must make once a customer has been attracted. For example, once a new customer has agreed to a long-term contract, it is the company’s responsibility to honor that agree even it is unprofitable and not “bait and switch” the customer. Most often, penetration pricing is used by new competitors entering a market for the very first time.