Uber Wins Market Share with Penetration Pricing Thereafter, when the product gains enough market share it shifts its pricing strategy to a favorable circumstance. Most brands use penetration pricing in the first phase of the product cycle. Penetration Pricing Industry Examples of Penetration Pricing Strategy If customers like the product, they might continue to buy the product at full price. Once a sizeable number of customers try the product, they take off the discounted price. Introductory pricing is a strategy to encourage consumers to try a new item. After March 2022, the price was increased to RM2.30. In the above example, when the Slurpee lemon lychee drink was introduced in February ’22 at 7Eleven stores, in Malaysia, the introductory price offer of RM1.50 was offered for a month. To fulfill this goal, there are instances when companies extend the strategy for more than a year. Whereas, brands using penetration pricing intend to gain a large market share by selling more volume of products at low prices. The introductory trial price runs from one month to a year, thereafter it goes full price. In both these strategies, low prices act as a stimulus to attract customers to buy a newly launched product. There is a very subtle difference between introductory pricing and penetration pricing. The brand sold its mechanical razor below cost price to stimulate customers to buy higher profit-generating replacement blades. This strategy of killing two birds with one stone was very cleverly implemented by Gillette. In this strategy, they sell one of the items at a loss and entice customers to buy their highly-priced complementary product. Loss leader pricing is used at any phase in a product’s lifecycle but only brands that have two complementary products can use this pricing. The intention of loss leader pricing and penetration pricing is the same – to expand the market share. When a product is launched, it is priced much below its competitors, and over time the price is increased. The penetration pricing strategy is exactly the opposite. It shows the price reduction of 9 different models of Samsung phones over 41 months since their launch. This line graph is a classic example of price skimming. Therefore, skimming is a commonly used pricing strategy. As soon as a product launches, competitors introduce products with similar features. Car brands and tech-related products are highly competitive sectors. Unlike prestige pricing, in skimming, the price is reduced a few months after its launch. In both strategies, products are launched with a high price tag. The price skimming strategy is similar to prestige pricing. In one of our earlier articles, we explored prestige pricing, a strategy in which a premium price is set for a product to give an impression of high quality and desirability. If your business goal aims to achieve any of the following or a combination, then a penetration pricing strategy may work for you. Such products are sensitive to price variation and have high mass appeal and aspiration value. Penetration pricing suits products that are price-elastic. The ultimate goal of such brands is to develop long-term loyalty among customers. After capturing a sizeable market share, the price is then steadily increased. By offering the lowest price in its category, the product intents to sell maximum volume. ‘Penetration Pricing’ is a short-term marketing strategy, that brands try in the initial phase to increase market share.
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