4/12/2024 0 Comments Penetration price policySince you sacrifice short-term profits for a more significant early market share, there can be an initial pressure on your budget. There are some penetration pricing disadvantages, however. Lower pricing is a relatively easy way to differentiate new entrants from existing market players. If you provide similar services or more advanced features than the competition, you can gain a competitive edge which allows you to sell in high volumes. Lower prices can lead to increased demand. Good brand loyalty helps you to gain a foothold in the market, ideally to the extent that new competitors would have to work hard to win customers from you. If the product is good, then customers will likely keep buying it, and may even stick with it if you increase the cost of the product over time. Penetration pricing helps companies to build an early customer base. Here are some key advantages of this approach. Companies adopt penetration pricing strategies when the market they're looking to enter is overcrowded and they need to stand apart. The goal of a penetration price strategy is to offer a product or service at a low rate during launch to attract early customers, build a loyal following, or even export to international markets. You get up to 54 days to clear your Card balance, so you can keep your money in the account while your product gains traction and sales build.¹ Goals and advantages of penetration pricing When you're trying to gain competitive advantage with lower pricing but still have to pay for supplies, an American Express® Business Gold Card can help you to maintain good cash flow. “Once we started to gain a reputation as being the best-in-market, we started to push prices higher," says Brown, "as our prices shifted upwards to better reflect the labour involved, we further established our position as the premium brand for the product range, and we sold more. The downside of this strategy was that profit margin was compressed Pampeano was paying for expensive raw materials, a skilled production workforce, expensive packaging, and the option to personalise, but this wasn't reflected in the initial pricing. I feel confident about pursuing penetration pricing at the moment in the EU and the US because of this earlier success," she says. "When the brand was less well known in the UK, our price was similar to that of competitors, but the quality was better. “Penetration pricing works very well for us,” says Jennifer Brown, managing director of leather accessories company Pampeano, which used penetration pricing to enter the UK market around eight years ago but now retails here at full price. “Set it too high or too low, and you stand to lose your market share and sales.” Example of penetration pricing "A mass-market product with already stiff competition means you can take a clue from your competition to find that sweet balance," says Brian David Crane, founder of digital marketing fund Spread Great Ideas. The way you price your product also contributes to its perceived value within the competitive landscape. Pricing your product can be a tricky balancing act between what consumers are willing to pay for your product or service, and what works best for your business. Why is pricing strategy important to product management? In this article, we explore the advantages of penetration pricing (as well as its disadvantages) and offer insight into when and how to make this strategy work for you. There are many approaches, and choosing the right strategy depends on a number of factors, including market conditions, competitive landscape, and the maturity of your product or service. Getting your pricing strategy right is one of the most important parts of running a good business.
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