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. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center