What is penetration pricing

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And in a market heavily driven by consumer trust and brand loyalty, many consumers are reluctant to switch brands or try new products. After all, the reasoning goes, why spend money on a product that might be awful? Penetration pricing introduces customers to a new product at a steep discount, and often at a loss to the merchant.

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Discount penetration pricing is a strategy designed to keep prices low to shut out potential competition. When used in an existing market, it creates a price war. The strategy can be very effective for companies that do their market research carefully and know that they have the resources to make it work.

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You often see the tagline "special introductory offer" — the classic sign of penetration pricing. The aim of penetration pricing is usually to increase market share of a product, providing the opportunity to increase price once this objective has been achieved. Penetration pricing is the pricing technique of setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers.

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Related Terms: Pricing. Penetration pricing is one of two contrasting but attention-grabbing techniques for introducing new products or services to a market. In penetration pricing, the price is set low in order to acquire a following and market share.

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Penetration pricing is a pricing strategy where the price of a product is initially set low to rapidly reach a wide fraction of the market and initiate word of mouth. Penetration pricing is most commonly associated with marketing objectives of enlarging market share and exploiting economies of scale or experience. These are advantages of penetration pricing to the firm: [3].

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This strategy is based on the assumption that 1 the product does not have an identifiable price-market segment2 it has elasticity of demand buyers are price sensitive3 the market is large enough to sustain relatively low profit margins, and 4 the competitors too will soon lower their prices. Dictionary Term of the Day Articles Subjects. Business Dictionary.

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A market penetration pricing strategy means setting the price of a product or service as low as possible to facilitate rapid sales. It is likeliest to succeed in large, growing markets and is most often used in new product introductions. A penetration price is generally chosen when the marketer's goal is to achieve high market share.

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Go deep with low prices and gain new customers, but be careful that you don't lose profits. Shat from Fotolia. If your business is looking for an aggressive marketing strategy to bring in new customers and switch people's brand loyalty, penetration pricing might be the answer.

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