PENETRATION PRICING EXAMPLES HOW TO

Innovative product: Your new product doesn't have direct competition or reference price. Here are situations when you may consider using the skimming pricing strategy: Price elasticity and their target customer can also influence their choice of strategy. Their decisions may be influenced by factors such as production capacity restrictions or the ability to perform mass production. This allows you to minimize your costs.Ĭompanies opt for skimming or penetration depending on what they want to maximize: market share, total profit, customer lifetime value or profit margin. Selling many items may allow you to order supplies in bulk and receive discounts from suppliers. Lower costs: When you offer a low selling price, you can generate a high sales volume. Reduced competition: Penetration creates a barrier to entry, meaning it can prevent competitors from entering your market, because they can’t offer a price lower than yours. The low price brings them in, and depending on your product’s quality, customers might keep buying it even if you increase the price later.

Improved brand loyalty: In the midterm, penetration pricing allows you to build a strong and loyal customer base. The penetration strategy offers the following benefits:Ĭustomer conversion: Penetration can help you attract customers away from competing brands, if you pair the product launch with efficient marketing. Then, according to your customers' behavior, you might adjust and reduce the price. You start high and identify your consumers' price sensitivity while selling as much as possible at the highest price. Īdaptable strategy: The skimming strategy offers the possibility to change the price according to market changes. Companies often see customers associating their products with terms like “prestigious,” “innovative,” “unique or “futuristic,” because customers often perceive expensive products as high-quality products. Improved brand image: Skimming can influence the way customers perceive your brand. This results in high revenue and profit you might use to increase marketing efforts and distribution, boosting profit even more. Maximized early revenue: When you use the skimming pricing method, you can cover your investment costs rapidly as you sell at the highest possible price. Therefore, you can maintain high prices and generate stable profits in the long term. Steady long-term profit: Skimming allows you to target value-oriented customers who are willing to spend more money.

Low cost impact: Skimming allows you to generate a profit margin regardless of the cost basis because your price is high. Price skimming can offer the following benefits: Skimming and penetration pricing strategies offer different benefits, including:: Skimming benefits Read more: What Is Penetration Pricing Strategy? (Plus Examples) Differences between skimming and penetration pricing Doing so, they manage to keep their prices low and keep their customers. Companies often use this strategy combined with a low-cost structure, meaning they reduce costs to maximize margins. When setting a low price as part of an introductory campaign, companies may find customers switch to competitors once the price is raised. However, penetration pricing may continue to see limited profits because the company doesn't target customers willing to pay high prices. Finally, when the demand increases, you can set the price higher. Profits are lower in the short term, but the high number of early sales compensates for the small margins. With this method, you enter the market rapidly and grow a loyal client base. Penetration pricing is a strategy where prices are set low to attract new customers and increase the product’s market share.

PENETRATION PRICING EXAMPLES HOW TO

Related: How To Set a Pricing Strategy Framework What is penetration pricing? Therefore, a high-quality product is essential to maintain your value-oriented customers' interest. Skimming leaves an opportunity for competitors to undercut your prices and try to attract your customers. The price is then steadily reduced over time to attract other customers. You make fewer sales at first, but they are more profitable. Price skimming is an effective pricing strategy when companies target customers that are already interested in their products The strategy is to set your prices high in the beginning to maximize short-term profits.

Penetration pricing examples