Penetration Pricing

AAA

DEFINITION of 'Penetration Pricing'

A marketing strategy used by firms to attract customers to a new product or service. Penetration pricing is the practice of offering a low price for a new product or service during its initial offering in order to attract customers away from competitors. The reasoning behind this marketing strategy is that customers will buy and become aware of the new product due to its lower price in the marketplace relative to rivals.

INVESTOPEDIA EXPLAINS 'Penetration Pricing'

Penetration pricing can be a successful marketing strategy when applied correctly. It can often increase both market share and sales volume. Additionally, the high sales volume can also lead to lower production costs and higher inventory turnover, both of which are positive for any firm with fixed overhead.


The chief disadvantage, however, is that the increase in sales volume may not necessarily lead to a profit if prices are kept too low. As well, if the price is only an introductory campaign, customers may leave the brand once prices begin to rise to levels more in line with rivals.

RELATED TERMS
  1. Price Leadership

    When a firm that is the leader in its sector determines the price ...
  2. Predatory Pricing

    The act of setting prices low in an attempt to eliminate the ...
  3. Competition-Driven Pricing

    A method of pricing in which the seller makes a decision based ...
  4. Price War

    When companies continuously lower prices to undercut the competition. ...
  5. Monopolistic Competition

    A type of competition within an industry where: 1. All firms ...
  6. Big Data

    The growth in the volume of structured and unstructured data, ...
Related Articles
  1. A Practical Look At Microeconomics
    Economics

    A Practical Look At Microeconomics

  2. Using Porter's 5 Forces To Analyze Stocks
    Markets

    Using Porter's 5 Forces To Analyze Stocks

  3. A History Of U.S. Monopolies
    Personal Finance

    A History Of U.S. Monopolies

  4. 10 Breakout Ideas For Small Businesses ...
    Entrepreneurship

    10 Breakout Ideas For Small Businesses ...

comments powered by Disqus
Hot Definitions
  1. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
Trading Center