Penetration Pricing
Penetration pricing is a marketing strategy used by businesses to attract customers to a new product or service by offering a lower price during its initial offering. The lower price helps a new product or service penetrate the market and attract customers away from competitors. Market penetration pricing relies on the strategy of using low prices initially to make a wide number of customers aware of a new product.The goal of a price penetration strategy is to entice customers to try a new product and build market share with the hope of keeping the new customers once prices rise back to normal levels. Penetration pricing examples include an online news website offering one month free for a subscription-based service or a bank offering a free checking account for six months.
Penetration Pricing
Definition: Penetration pricing is a marketing strategy where a company sets a low price to attract customers to purchase a new product or service. This low price helps the new product or service penetrate the market and draw customers away from competitors.
Origin: The penetration pricing strategy originated in the mid-20th century as market competition intensified, prompting companies to find new ways to quickly capture market share. Early applications can be traced back to the consumer goods industry, such as food and beverages.
Categories and Characteristics:
- Short-term Penetration Pricing: This strategy is typically used to quickly attract a large number of customers, suitable for the initial stage of a new product entering the market. It is characterized by low prices and a short duration.
- Long-term Penetration Pricing: This strategy is suitable for companies that wish to maintain market share over a longer period. Prices may gradually increase but remain below competitors.
The main characteristics of penetration pricing include: low price strategy, rapid market penetration, attracting new customers, and building market share.
Specific Cases:
- Online News Website: An online news website offers a one-month free subscription service to attract new users to register and experience its content. After the free period ends, users may choose to continue subscribing, thereby increasing the number of paying users.
- Bank Free Account: A bank offers a six-month free checking account service to attract new customers to open accounts and use its services. After the free period ends, customers may continue to use other services of the bank, thereby increasing customer retention.
Common Questions:
- Will the low price strategy affect the brand image? The low price strategy may lead consumers to perceive the product as lower quality, so companies need to maintain product quality while offering low prices.
- How to retain customers after prices return to normal? Companies can retain customers by providing excellent customer service and continuous product improvements.
