Companies can use penetration pricing techniques to retain a strong reputation, build their customer base, and enhance income. You can apply these ideas to various industries to help them do successful business practices.
You may assess which technique best serves your company’s goals by understanding how to apply penetration pricing to various circumstances and contexts.
We explain penetration pricing and present ten instances to consider while creating your technique in this article.
What is penetration pricing?
Penetration pricing is a marketing strategy that involves delivering a product or service at a lower price to compete more effectively in the market.
It also enables a business to attract new clients who might appreciate a discount. After that, a company can either raise the price of the product or service or provide a more expensive version of it.
Penetration pricing plans get frequently designed with the long-term goal of improving a company’s standing in a specific industry. And they also retain more clients who would get tempted to choose a known brand in the future.
The penetration price is a pricing strategy based on pricing the product at or below the average cost of acquisition, or ACoA.
Penetration pricing can be used for various reasons, including increasing market share, reducing marketing expenditures, and increasing profits.
Many different industries can benefit from penetration pricing. Startups that need to build market share quickly frequently use penetration pricing.
The use of penetration pricing is not without its risks. Penetration pricing strategy can negatively impact company profits, brand loyalty, and customer retention.
What is the importance of penetration pricing?
Penetration pricing allows a company to enter the market with a low price point and then gradually increase prices over time as they gain more market share.
Startups with difficulty competing on pricing with established businesses frequently use this strategy.
The penetration pricing model allows the company to gain market share quickly. Also, it takes advantage of the economies of scale with a more extensive customer base.
Providing the company maintains its prices, it will have the edge over its competitors. The competitors have higher initial costs for advertising or other marketing efforts.
Penetration pricing is also essential because it encourages consumers to buy from companies that offer discounts. It helps businesses grow their customer base and increase sales without spending too much money on marketing.
Top 10 examples of penetration pricing:
Streaming companies:
Streaming companies are breaking into the market with a fresh take on the classic business paradigm. To attract more consumers, they provide their services at a lesser cost.
Streamlining companies aim to provide low-cost services and make money via advertising, subscriptions, and data mining.
Many streaming services employ penetration pricing tactics. They aim to expand their subscriber base by offering prospective customers a trial period.
It allows users to preview premium content and how a firm interacts with its customers.
You can also use this method as promotional content, which can assist a buyer in deciding between two services.
Netflix is a shining illustration of penetration pricing done correctly. People frequently complain about their Netflix subscription fees increasing or their one-month free trial period expiring.
Banking Institute:
When offering prospective customers the option of opening a checking or savings account, bankers may employ a penetration pricing strategy.
Because banks provide relatively similar services, it may be beneficial for an institution to offer discounts or other sales incentives. It is to entice new clients to choose one service over another.
This method can also assist banks in establishing strong ties with their customers, which can be lifetime or intergenerational.
Hospitality services:
The hospitality business has been ripe for penetration pricing. Almost every airline has adopted this tactic to gain customers or stay competitive at some point.
The widespread use of price-driven marketing in the late twentieth and early twenty-first centuries contributed to many unsuccessful and failing airlines.
Hotels, too, frequently use discount pricing and promotions. Hotels and motels like Econo Lodge, Super 8, and Motel 6 use penetration pricing to compete against larger-scale enterprises.
Airlines:
Airline companies are using different pricing strategies to increase their profits. The most popular method is penetration pricing.
In 1949, the United States’ Pacific Southwest Airlines (PSA) gained recognition as the world’s first low-cost airline. Frontier Airlines is a low-cost airline that is United States-based.
Kingfisher Airlines has revolutionized the game in the Indian airline industry by offering low-cost flights.
Many airlines, including Indigo and Spicejet, have adopted the same price model.
Internet Providers:
Penetration pricing is widely used by television and Internet providers, much to the dismay of customers who notice significant, unexpected hikes in their bills.
For example, Comcast/Xfinity frequently provides low initial prices, such as free or heavily discounted premium channels, and minimal incremental upgrade costs.
Smartphone Providers:
With a penetration strategy, Android hopes to increase its market share. With Samsung leading the pack, Android phones are available at a severe discount or a considerably lower price than Apple phones to lure customers away from Apple.
Apple supports a skimming strategy, offering high-cost products that skim a small market share off the top. The method opens up the Android marketplace to an enormous variety of users.
Food and Beverages:
A penetration pricing strategy gets used to bring many new foods to the market.
Startucks, a high-end coffee shop, frequently introduces new and seasonal coffees and drinks at a lesser price. The goal here is to entice customers to try them.
Once customers have become acclimated to these goods on the menu and have shown a positive response, Starbucks withdraws the penetration pricing offers. Thereby it resumes selling them at regular prices.
Clothing industry:
When consumers buy clothes, retailers can leverage penetration pricing by offering them other services. Extra perks, a free product, or future access to unique promotional content are all possibilities.
H&M, for example, employs the penetrating pricing strategy. They set the prices of their goods at a low level to capture the market and help buyers get a feel for the product.
Once they are satisfied that they have captivated and retained their customers. Also, confident that they fully know the value of their products, they can begin to raise the prices.
FMCG Industry:
When it comes to a good penetration price plan, Gillette’s one name pops up. For years, it has maintained its market leadership by giving away free razors or selling them at a lesser price than its competitors.
Gillette makes up for lost income by selling razor blades, attachments, and accessories at a higher price.
Video Games:
Video game publishers frequently employ penetration pricing techniques by providing free items with paid features. Managers may also give a cheap initial game title before raising the price for any extra features, such as downloadable content (DLC).
A popular game by Wild Globe Enterprises allows you to mimic living in a suburban area. After giving away the original product for free during a Christmas sales drive, executives unveil new paid content and allow users to purchase it within the app. As a result, the company’s customer base and revenue continue to rise.
Conclusion:
The penetration pricing strategy allows companies to take advantage of the company’s current market position to achieve higher profits and market share. The plan also allows companies to bring in new customers who are not yet aware of the company’s products or services.
This strategy is best suited for businesses with a strong product and service offering. As well as for companies aiming at high customer retention rates and strong brand recognition.
The article has discussed different examples and industries where the penetration pricing strategy gets implemented. It has also provided a brief overview of how it works and its benefits.
