![]() Another potential disadvantage is that the low-profit margins may not be sustainable long enough for the strategy to be effective. For a company to take market share from another that already has a customer base, their product can either be of better quality or be available at a lower price. Both can make it difficult to raise prices later. Firms use penetration pricing which is a mechanism in marketing to get people to try new products or services by first giving them away at a lower price first. Adjusting pricing is a common strategy to increase market penetration. After a company increases its market share and establishes a reputation. The main disadvantage of penetration pricing is that it establishes long-term price expectations for the product and image preconceptions for the brand and company. Market-penetration pricing involves pricing a product significantly lower than the competition to generate buyer interest. It can generate high stock turnover throughout the distribution channel, which creates important enthusiasm and support in the channel.It discourages the entry of competitors.It establishes cost-control and cost-reduction pressures from the start, leading to greater efficiency.It can create goodwill among the Innovators and Early Adopters, which can generate more demand via word of mouth. ![]() The strategy can achieve high market penetration rates quickly, taking competitors by surprise and not giving them time to react. It can result in fast diffusion and adoption across the product life cycle.The advantages of penetration pricing to the firm are the following: Penetration pricing refers to a marketing strategy utilized by businesses for attracting customers to a brand new product or service. Like skim pricing, penetration pricing shows an awareness of the dynamics in the product life cycle. Why Might Penetration Pricing Make Sense? Penetration pricing offers a lower price in order to draw in higher demand from consumers. If the initial price is set low, at $2, for instance, the quantity demanded will be high: 400 units. Returning to our economic model, below, you can see that penetration pricing focuses at the bottom of the demand curve. Penetration pricing is most commonly associated with marketing objectives of enlarging market share and exploiting economies of scale or experience. The strategy works on the assumption that customers will switch to the new product because of the lower price. The higher the elasticity, the lesser the volume growth resulting from a one-percent price reduction. , Which of the following is TRUE regarding price elasticity Select one: a. Penetration pricing is a pricing strategy in which the price of a product is initially set low to rapidly reach a wide fraction of the market and initiate word of mouth. Study with Quizlet and memorize flashcards containing terms like A market-penetration pricing strategy is most suitable when. 206 Reading: Penetration Pricing What Is Penetration Pricing?
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