What Is Penetration Pricing? Explain with Examples and Conditions

Penetration pricing is the market concept adopted for a new product to be launched in a market with low prices so that it may penetrate the market and can gain its position amongst the rivals. This strategy is implemented by the marketers for achieving the high ratio of sales for their new product by keeping it economical. By using this idea you can diffuse new products in a previously existed market in which there are huge rivals. You can keep your price low and compete in the market.

Applying this tactic you have to make a huge promotion of the qualities of your new product so that it can gain its place among competitors. This pricing strategy is usually adopted by local product producers and for local brands and is for the new entrants to endorse products by keeping the initial prices at a fairly low rate to attract the consumers.

Most of the time this appeal is used by the manufacturers who enter the market late, so this strategy is adopted by the latecomers to compete with baby boomers and already existing competitors.

Examples of Penetration Pricing Strategy

This price penetration strategy can be adopted by a local surf brand by keeping its price low to already existing brands in the market. Although usually, it is for normal consumable products like shampoo, a soap about which consumers are not brand conscious and can switch by observing fluctuation in price. So it is applied by latecomers or newcomers to gain their position in the market.

A big example of the companies adopting a penetration pricing strategy is UNILEVER. Along with using a skimming strategy they also adopt a penetration pricing strategy for some of their products like for LIFEBUOY SHAMPOO AND SOAP. This is mostly implemented when the company has to undergo basic requirements of life.

Conditions of Penetration Pricing

The conditions in which this strategy is mostly adopted are:

1. The penetration pricing approach is used to attain consumer attraction when market saturation condition is at its fullest.
2. It is also adopted when there is a large number of alternative brands available for the same product to fulfill the need of the consumers so to attain its required space can use such pricing strategy.
3. It is adopted by the marketers for products about which consumers are price conscious and can control the market on basis of price.
4. It is for the price elastic demand products; the products for which there is a direct relation with the price and consumer value their money by charging low prices by modifying the price for the same product.
5. For the products upon which consumers decide upon the basis of price differentiation that what to adopt and what product to skip.
6. It is a scheme used when in the market there is such an adequate number of products that for your product life you have to manage on low earnings.
7. This price penetration is for the market when there is a chance that rivals already existing will also move to low prices in the coming time so have to adopt this pricing strategy for new products.
8. It is usually for the products expecting a long life cycle as for the household items like soaps, shampoos and to achieve large market share and lock the market by moving with such strategy.

Why focus Penetration Pricing?

Penetration pricing is based on the intention to appeal a big ratio of price-sensitive customers far away from other rivals already existing in the market. The concept of marketing is based to make a fusion of low price along with keeping the good product quality to resist the competitor’s product in the market so that they cannot further reduce their price low than your product to meet their unit cost.

Penetration pricing is not for niche markets as opposed to other marketing appeals rather it is focused to target a large number of customers. You also have to focus on the good quality production of the product offering at a low price, so that it can appeal to the customer and can gain consumer trust.

Need for Penetration Pricing

There is a need for penetration pricing as it is not to cover the choosy customers who are selective at the time of purchase rather this scheme is designed to cover those customers who prefer low price-based goods and services. At the time of shopping, they focus on items that have a bit low price as oppose to the other products of the same kind available on the shelf.

It is used to gain high volume sales and the life cycle chart of such products show rapid growth. We may also say this penetration pricing strategy is adopted in the price-sensitive market in which the demand fluctuates along with the changing price of the previously existed product.

What to Know Before Implementing Penetration Pricing Strategy?

To implement such type of strategy so that it may work by decreasing competition at your end, instead of making it high, you have to consider a few points:

1. Consider the goal for your profit with respect to the cost
2. Consider the customers you are targeting
3. The life cycle of a product
4. And the other rivals in the market

So that your product may penetrate well in the market and work effectively.

Penetration Pricing Marketing

The main players of penetration pricing are the late entrants in the market who have to focus on each and every step to sell their product from marketing appeals to low prices and also have to offer reasonably good quality and have to maintain their unit cost.

It is a great deal for them to mingle all such material in a single product along with maintaining their sales and attracting early adopters. So this kind of promotion is usually adopted by the regional brands who know the market very well and for those who can also sustain and cover their profit margin by keeping their prices low.