For high-quality and innovative products, price skimming may not work. The product offered by the business is not so unique or truly innovative. There is a little product differentiation in the market.The business is using mass marketing, and the objective is to get a large market share.Penetration pricing is considered a suitable and appropriate pricing strategy if the following conditions are met. Once the lowest layer is captured and the market share is established, the price can then be increased gradually to target other layers of the market as well. As a result, the business can rapidly gain a substantial portion of the market. This low price serves as a powerful incentive for customers to choose the new product over existing alternatives. A diagram illustrating the working of penetration pricing. In penetration pricing, a business enters the market from its lower end by setting an initial low price, as shown in the following diagram. The customers with low purchasing power make up the highest proportion of the market. The market for a product can be divided into different layers of customers based on their purchasing power. Understanding the Working of Penetration Pricing Once they have captured their targeted market share, they can raise prices to increase profits and reflect the product's rising value. By attracting customers with a lower price, businesses can establish themselves in the market and gain a foothold. The theory behind this strategy is that a low initial price will disrupt existing businesses by luring customers away with a much lower price. This lower price point will generate demand and build a customer base in a short time. The primary objective of penetration pricing is to capture market share by offering a lower price than competitors. Pricing is a crucial aspect of any business strategy. This pricing is also called market penetration pricing. If the product gains a large market share, then the price can slowly be increased. This low price is often supported by strong promotion in order to achieve a high volume of sales and capture a large market share. Penetration pricing means setting the price of a new product or service initially very low and then gradually increasing it over time.
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