Which pricing strategy is used when a company wishes to match its competitors?
What Is 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. Show
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. Key Takeaways
Penetration PricingUnderstanding Penetration PricingPenetration pricing, similar to loss leader pricing, can be a successful marketing strategy when applied correctly. It can often increase both market share and sales volume. Additionally, a higher amount of sales can lead to lower production costs and quick inventory turnover. However, the key to a successful campaign is keeping the newly-acquired customers. For example, a company might advertise a buy-one-get-one-free (BOGO) campaign to attract customers to a store or website. Once a purchase has been made; ideally, an email or contact list is created to follow-up and offer additional products or services to the new customers at a later date. However, if the low price is part of an introductory campaign, curiosity may prompt customers to choose the brand initially, but once the price begins to rise to or near the price levels of the competing brand, they may switch back to the competitor. As a result, a major disadvantage to a market penetration pricing strategy is that an increase in sales volume may not lead to an increase in profits if prices must remain low to keep the new customers. If the competition also lowers their prices, the companies might find themselves in a price war, leading to lower prices and lower profits for an extended period of time. Penetration Pricing vs. SkimmingWith pricing penetration, companies advertise new products at low prices, with modest or nonexistent margins. Conversely, a skimming strategy involves companies marketing products at high prices with relatively high margins. A skimming strategy works well for innovative or luxury products where early adopters have low price sensitivity and are willing to pay higher prices. Effectively, producers are skimming the market to maximize profits. Over time, prices will reduce to levels comparable to market prices in order to capture the rest of the market. Small businesses or those in niche markets can benefit from price skimming when their products or services are differentiated from competitors' and when synonymous with quality and a positive brand image. Example of Penetration PricingCostco and Kroger, two major grocery store chains, use market penetration pricing for the organic foods they sell. Traditionally, the margin on groceries is minimal. However, the margin on organic foods tends to be higher. Also, the demand for organic, or natural, foods is growing significantly faster than the market for non-organic groceries. As a result, many grocers offer more extensive selections of organic foods at premium prices to boost their profit margins. However, Kroger and Costco use a penetration pricing strategy. They are selling organic foods at lower prices. Effectively, they are leveraging penetration pricing to increase their wallet share. While this strategy may be risky for small grocery stores, economies of scale permit Kroger and Costco to employ this strategy. Economies of scale essentially means that larger companies can offer lower prices because they buy their inventory in bulk at a volume discount. The lower costs allow Kroger and Costco to maintain their profit margins even while undercutting the pricing of their competition. Product Growth Reach new customers and keep them engaged. Reviews Improve your reputation. Website Chat Capture website leads. Text Marketing Grow with text campaigns. Communication Bring every channel and customer into one place. Inbox Manage all messages in one place. Contacts See every customer activity. Channels Message through Podium, no matter where you’re found. Payments Collect digital and in-person payments. Payments Payment solutions built for Podium users. Solutions AutomotiveRetailHome ServicesProfessional ServicesHealthcareDentalFinancial ServicesAgencies and Partners PricingResources BlogGuidesWebinarsCustomer StoriesHelp CenterWhat's New? Customer SupportPodium for Retailers Your best pricing strategy: 7 examples to maximize your profits.Products
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What is competitor based pricing strategy?What is competition-based pricing? Competition-based pricing is a strategy by which price varies according to variations in the price of competitors. The product price is detached from a customer's willingness to pay or product value and is attached solely to competitor prices.
What is competitive matching pricing?Price matching refers to matching a lower product price from a store in the competitive market. For example, a retail store that sells you the same product for a lower price. Companies use this strategy to save time and money because customers get the lower price available without visiting another store or shop.
What are the 4 pricing strategies?What are the 4 major pricing strategies? Value-based, competition-based, cost-plus, and dynamic pricing are all models that are used frequently, depending on the industry and business model in question.
Which strategy sets a price lower than its competitors?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.
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