Example of market penetration pricing strategy. Penetration Pricing Strategy: Meaning, How it Works, Examples 2022-10-15
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Market penetration pricing is a pricing strategy that involves setting a low price for a product or service in order to quickly gain a large market share. This strategy is often used by companies that are entering a new market or launching a new product and want to quickly establish themselves as the dominant player.
One example of a company that has successfully used market penetration pricing is Uber. When Uber first entered the ride-hailing market, it used a strategy of setting low prices in order to quickly gain a large market share. This helped to attract a large number of customers and drivers to the platform, which in turn helped to create a network effect that made it more attractive to use Uber over its competitors.
To make this strategy work, Uber had to be able to achieve economies of scale by having a large number of drivers and customers using the platform. By setting low prices, Uber was able to attract a large number of drivers and riders, which helped to reduce the cost of providing rides. As the company grew, it was able to increase prices slightly while still remaining competitive, and this helped to increase its profitability.
Another example of a company that has used market penetration pricing is Netflix. When Netflix first launched its streaming service, it set prices that were significantly lower than its competitors, such as cable and satellite TV providers. This helped to attract a large number of customers to the platform, and as the company grew, it was able to increase its prices slightly while still remaining competitive.
Overall, market penetration pricing can be a effective strategy for companies that are entering a new market or launching a new product. By setting low prices, companies can quickly gain a large market share and establish themselves as the dominant player in the market. However, it is important for companies to carefully consider their cost structure and ensure that they can achieve economies of scale in order to make this strategy work.
Penetration Pricing Definition, Examples, and How to Use It
An effective way to do this is to properly communicate with the customers and be sensitive to their requirements and wants. Netflix: An example of penetration pricing. Among its most significant acquisitions are Smartwater and Vitaminwater, Minute Maid, Odwalla, Fuze Beverage and Honest Tea. Coca-Cola bought Fuze Beverage in 2007 in an undisclosed deal. The diversification strategy is most risky as the business grows into both a new market and product and is exposed to more uncertainties. Smartwater is the best-selling premium water brand in the U. If your competitor lowers their price, you might want to do the same.
They also throw out frequent discounts to attract price-sensitive individuals and turn them into loyal customers. So, the company should focus on one of these operations. Low prices can lead to high sales. They focus on attracting status-conscious customers who are willing to pay higher prices. Should we opt for a penetration pricing strategy to penetrate any market? Price Penetration Netflix Example The video rental industry was highly competitive at the time, though Netflix made several intelligent moves that allowed it to attain the market-leading position quickly. Please see This is not an offer, solicitation of an offer, recommendation or advice to buy or sell any security, financial product, instrument or to open a brokerage account in any jurisdiction where Brex Treasury is not registered.
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Market penetration is the successful selling of a product or service in a specific market. Therefore, you should regularly adjust and re-evaluate it. This allows Apple to implement the skimming price strategy. It started as a restaurant operated by Richard and Maurice McDonald in San Bernardino, California, the United States, which was rechristened into a hamburger stand, and later turned the company into a franchise. You can higher your earnings by not only setting the price as high as possible but also cutting the production cost. The goal is to generate demand, rapidly build a customer base, and maximize brand loyalty in a short time.
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. It focuses on making the consumers aware of the product. Though it is mainly recognized for its orange juice, Minute Maid comes in more than 100 different varieties, including apple juice and fizzy lemonade. That may lead to better relationships with your vertical supply chain partners, such as retailers and distributors, which can only benefit your business overall. The current formula of Coca-Cola remains a trade secret.
Using a penetration pricing strategy — with examples
His marketing tactics made Coca-Cola the present-day market leader of the world soft-drink market. For example, market penetration pricing would not be the right strategy to use when targeting a consumer base for whom the price point is unimportant. A product can be either a service or a physical thing. The company must very strategically pick the optimal size and distribution. In other words, you charge your product at a low price to attract more consumers. Some have specialty ice dispensers. Dynamic Pricing setting different prices for the same product.
A market penetration strategy would be a great way to introduce a new refrigerator to the market. They all do the same thing: keep food cold. Price penetration means pricing products at a lower end or with little margin, whereas price skimming prices new products at a higher end or with a large margin. Internet Providers Television and Internet providers are notorious for their use of penetration pricing — much to the chagrin of consumers who see massive sudden increases in their bills. Chances are if you are a new player in your chosen industry, you may also be considering a penetration pricing strategy to make yourself known to the marketplace too. To overcome the challenge, you need to be more unique and highly innovative in your approach.
It not only helps in reducing extra costs but also allows for operations to become profitable over time. Is penetration pricing right for your store? As there is a higher margin on organic products and due to economies of scale, these supermarket chains make money through increased demand and high sales volumes. With this strategy, your company may discover areas to improve cost efficiency, lower marginal costs, and control Disadvantages of penetration pricing. Actually, it can be risky too. Customers may view the purchase as less risky and be more likely to try it. The company strives for increased sales for its present products in its current markets through increased promotion and distribution.
As a result, the price will cover the cost as well as the desired profit. In the late 1990s and 2000s, DVD rentals were becoming mainstream. This pricing strategy only works when your target customers are the upper class, whose interest is the product quality instead of the price. Honda and Toyota are real-world competitive pricing examples. Decreasing the price too often would make them to believe that your products are of sub-standard quality.
Penetration Pricing Strategy: Meaning, How it Works, Examples
Conclusion Market pricing penetration is a great strategy for new companies entering a new market. Android phones, with Samsung leading the herd, are available at a steep discount or are priced at much lower costs compared to Apple, in the hopes that users will become loyal to the brand. In the fast-moving consumer goods FMCG space, an effective way to differentiate your brand from competitors, who are all selling similar products, is by offering disruptive prices when you are new to the market and developing brand recognition. Poor brand image: A lowered-price product is not necessarily always seen as good. How does a penetration pricing strategy work? If you use penetration pricing, you'll be the company selling similar products cheaper than your competitors.
It also provides seasonal product like the Pumpkin Spice Latte fondly called PSL by Starbucks fans , which heralds the arrival of autumn for Starbucks fans and aficionados. Furthermore, as newer products are introduced, Apple lowers the prices of its older products. It can be tangible, like a physical product, or intangible, like a service. Take a look at these 5. Price Adjustment The strategy of Price Adjustment is one of the most widely used market penetration tactics. Recommended Articles This article explains everything about Penetration Pricing Strategy. Market development strategies bear more risk than market penetration strategies as there are more uncertainties in new markets than existing ones.
