#MARKET PENETRATION PRICING DEFINITION FREE#

It will then raise the price after gaining a monopoly over the market to gain a higher profit margin. If the average cost of soap in the market is $10, company A decides to sell at a lower cost by enticing customers, achieve economies of scale, and get customers to switch. It decides to enter the market and sell soap at $5 where the cost of production is $5.50. If an FMCG company A is able to manufacture soaps at a lower cost because of excess production capacity. The below-market penetration pricing example will help to understand the concept of penetration pricing in a wider manner.

#MARKET PENETRATION PRICING DEFINITION FREE#

A few examples are an online grocery store offering a free delivery service for customers who sign up, banks offering a saving’s bank account at zero balance for six months. To understand penetrating pricing meaning, the following penetration pricing examples will be of good help. Mass markets let to have a wider customer base thereby creating economies of scale. When the product is suited for the mass market.For eg: different kinds of laundry detergents, and toothpaste available on market shelves. Too many similar products in the market and there is very little product distinction.Demand is price-elastic ( dependant on the price of the product).Penetration pricing helps to build brand loyalty, generate substantial demand, create economies of scale, switch customers from competitors, and kill competition too. Price is one of the key ways to distinguish from competitors. To learn what is price penetration, one has to know what is the rationale behind penetration pricing. The goal of pricing for market penetration is enticing customers to experiment with a new product and build market segment. Market penetration pricing depends on the premise of using low prices, in the beginning, to make customers conscious of a product and increase the customer base. The reduced price helps a new product or service pierce the market and attract customers from competitors. The penetration pricing definition works on the premise that the lower the price of a new product or service, the higher the penetration and gain of customers from the competition. Once the customer base is created and competition won over, businesses can slowly increase the price to cover production costs and gradually make profits. This generates economies of scale and businesses can achieve break-even points quickly. The main aim is to penetrate into the market with the price of the product and then work towards retaining the customer base.Ī lower price helps to quickly sell the product as it attracts new customers. An extreme form of pricing for market penetration is called predatory pricing. Experts define penetration pricing as a pricing tactic used quickly to gain market share by setting a low price for products initially, aimed at enticing customers. What is penetration pricing, one may ask? Market penetration pricing strategy is a promotion technique used by firms to attract new customers to a new product or service. Read on to find out more about the meaning of penetration pricing. The initial promotional price gives the product recognition and is particularly useful when entering new markets. It basically involves selling the product for a lower price to maximize sales volume and capture market share. Often used for a new product range or new product launch, a penetration pricing strategy is used to gather the customer base. Key decisions have to be made about how it needs to be priced to attract the customer and generate sales. As a business owner, you will need to make a critical decision about the introduction of a new product into the market or whilst entering a new market.

Market penetration pricing definition