Penetration Pricing


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.

BREAKING DOWN '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.

  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. Brand Identity

    Brand identity is the way a business wants consumers to perceive ...
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