As we covered in our post about this strategy, price skimming is “when a brand or retailer charges a high price for a product at launch and then reduces that price over a short period of time.” Penetration pricing isn’t the only product-launch pricing strategy out there, however. Organic food brands and retailers, including Costco, pricing organic foods lower than the competition to increase market share in grocery.Streaming providers, specifically Netflix, taking on established players in the entertainment industry.Apple smartphone competitors providing a lower-cost alternative to the iPhone, such as Android devices or Samsung phones.Cable providers offering low-priced packages for the first six to 12 months of a contract before increasing prices.Several examples of penetration pricing include: Those initial narrow margins may be worth it to get customers in the door and build up demand for your products. Penetration pricing works because brands will gradually increase prices over time, driving up profit margins. Setting a low price for a new product positions that brand as a more affordable alternative to the established competition. How does penetration pricing work? Simply put, this pricing strategy plays on the desire of consumers to get the best deal possible. Otherwise, customers will simply flee to any provider with the lowest price option. Make sure that cultivating brand loyalty is a top priority when working out your pricing and product strategies. The penetration pricing strategy works best when the products or services are best suited to a mass market, like a subscription. Pull in customers from other competitors. This helps capture the attention of potential buyers to quickly build up a customer base. Penetration pricing works to disrupt the market by introducing new products at low prices to entice customers to stray from competitors. What is the Purpose of Penetration Pricing? Penetration pricing is when a product is priced lower than the competition to drive sales during the initial release period.
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