What is Penetration Pricing?

The pricing technique in which prices of products are low to bring in new customers and improve the product’s market share is known as penetration pricing. With this strategy, businesses can easily enter the market and develop a loyal customer base. For instance, A bank provides a free checking account for a period of two months or an online platform such as Amazon Prime Video provides a free trial of a subscription for one month.

Characteristics of Market Penetration Strategy:

• Low Initial Price: Under this strategy, the product or service is priced significantly less than that of its competitors when it is first introduced to the market. This helps to attract customers and motivate them to test out the products.
• Obtaining Market Share: The main objective of this pricing is to gain a market share significantly and quickly. The company intends to become one of the biggest players in the marketplace and draw customers away from competitors by offering lower pricing.
• Gradual Price Increases: To increase profitability, a business may gradually increase price after gaining a significant share of the market and establishing the product. This should be done carefully to prevent offending customers who are using cheaper-priced products.
• Price Flexibility: For the purpose of encouraging consumers to buy the products, market penetration pricing may use flexible price techniques such as temporary discounts, sales promotions, or bundled packages.
• Creation of Entry Barriers: A business that uses market penetration pricing can create hurdles for prospective competitors to enter the market. It is challenging for new competitors to properly compete with the company because of its quick capture of market share through low prices.

Penetration Pricing and Skimming Pricing are two distinct pricing strategies used by businesses to introduce new products or services to the market. Penetration Pricing involves setting a relatively low initial price for a new product or service to quickly gain a large market share. Skimming Pricing, on the other hand, involves setting a high price for a new product or service initially and then gradually lowering it over time.