Below are some of the main drawbacks of using penetration pricing: No marketing strategy is devoid of certain disadvantages. Doing this effectively may mean you discover other ways to keep costs low and maximise profits going forward. This means that during the launch period you can effectively diminish the threat of competition.Ĭan lead to greater cost efficiency - Managing penetration pricing requires attentive and informed budgeting and financial forecasting to pull off. Plus, customers who keep a keen eye on the purse strings will be won over by the strategy and more likely to tell their friends and family about it.ĭecreases competition - Coming out with comparatively low prices can catch competitors off-guard, making you the clear choice for potential customers. Through starting out with a low price, new businesses can create a good relationship with customers who value the exchange of a quality service for a relatively low-cost transaction. Large sales volume offsets low price - While in general lower prices lead to lower revenues, with penetration pricing the sheer increase in sales volume can make up for lower mark-ups, making it a potentially low risk strategy for small businesses.Ĭan help build a good reputation - At the end of the day, customers are attracted to good value deals. Rapid adoption - A low price will entice large volumes of customers as it comes at a low financial risk. Let’s explore some of the pros of the marketing strategy: Market penetration pricing can be an effective way to gain market share. Indeed, often customers take advantage of the low prices and then opt out once costs increase up to normal levels. However, the success of the strategy is measured by how many customers stick around once the low-cost incentive has gone. Penetration pricing can be a successful marketing strategy when used effectively and can often lead to a boost in market share and sales volume. Examples include an online subscription service offering the first month free, or a cosmetic store offering a discount on a first order. The goal is to keep customers onboard even after this initial price rises. Penetration pricing is a strategy for enticing customers to try a new product or service for an initially very competitive price. In this post we’ll take you through what you should consider in terms of the pros and cons of using penetration pricing as a small business. This low price assists in helping the new product or service effectively penetrate the market and attract customers. Penetration pricing is a marketing strategy which involves businesses pulling in customers through offering a product or service at a temporarily low price at its launch.
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