The penetration pricing strategy is generally used by the companies to attract the customers towards a new product or a service. With this method, high volume of sales can be achieved in the market penetration of the new product or the service. In the initial stages of the penetration, the prices are set to be low to attract more customers and to keep them away from the competitors.
The penetration pricing strategy can be applied in different approaches:
- The particular strategy can drive away the competitors away from the marketplace. This can help in increasing the price eventually with a very little obstruction from the price competition.
- It can obtain a huge market share and the seller can decrease the manufacturing cost because of the large manufacture and buying volumes.
- The pricing strategy can use the excessive capacity through the marginal cost pricing and can then remain in the penetration pricing method for quite a long time.
It is a very common strategy used by the market penetrators. This approach is generally activated to grab a huge market share very quickly. When the new entrants can produce similar quality of products and can only differentiated with the price, the lower prices can definitely attract large number of customers.