Posted in Marketing and Strategy Terms, Total Reads: 306
Definition: Penetration Pricing
Penetration pricing is a pricing strategy wherein a product is initially sold at a rate lower than all the competitors in order to acquire a major market share, to reach a wider audience, promote trial of the product and to initiate word of mouth.
Generally new firms in order to take the market by storm employ penetration pricing as it doesn’t give the competitors time to adapt to changed prices. As the prices are low the cost efficiency that the firm operates on needs to be high in order to guarantee sustainability. Companies generally employ penetration pricing on certain products in order to get the customers to visit the store or their site and in the process sell other products as well making it highly profitable due to increased gross merchandize volume sold and the associated sales
Eg. Flipkart selling items at a rate lower compared to the mom and pop stores as well as other online stores in order to increase its market share and build a customer loyalty