What does penetration pricing in the marketing strategy? This is the explanation
In attracting customer interests, there are many marketing strategies that you can do. One of them is by implementing a Penetration Pricing or Penetration Strategy.
This strategy is claimed to be able to attract attention and also the behavior of customers to be able to switch to your products or services. However, what exactly means of the penetration pricing?
Here we provide a full review of penetration pricing for you so that your business can be more successful.
Understanding of penetration pricing.
Reporting from the Official Investopedia page, Penetration Pricing is a cheap price bidding strategy for new products or services published to the community.
The main objective, based on the quoted Price Points by Omnia Retail page is the means of promotion of a new goods or services, attracting new consumers, and collecting more customers in the initial sales period.
Generally, price implementation strategies are made if there are already similar products launched by competitors. So, companies can be easier to take customers who are of course always looking for the cheapest prices on almost the same products.
When there are many people who know the product, the company can generally enter the market and become a healthy competitor. Therefore, this low price determination cannot survive the page.
There are only set for one month or six months, but in essence only reaches many people and makes them recognize products or services sold by the company.
The basis of thought behind what price penetration is
For new business people, using a penetration pricing strategy to be able to compete in the market effectively is commonplace. Price is one of the easiest ways to distinguish the existence of new competitors among other existing companies that existed.
The main objective of this penetration pricing is to create a brand of loyalty, divert customers from other competitors, making market share, giving birth to a significant demand by using an economical scale, and getting rid of competitors.
Determination of this penetration pricing strategy can only be effective in several conditions, such as when product differentiation starts a little, demand for elastic prices, and products according to market share and also.
Penetration pricing vs skimming
Basically, skimming is a very contrary pricing for the penetration pricing strategy. In penetration pricing, the company will promote products at low prices so they get a simple margin.
On the other hand, Skimming is a product sales strategy with prices and also a high margin. This strategy is very suitable to be applied to luxury or more innovative products. Effectively, later the producers will find a market to maximize its profits.
Gradually, prices will decrease at the same level as competitors to be able to capture the remaining market share.
Why are customers are willing to buy?
Not all products can be appropriate for implementing a price skimming strategy and also not many consumers are willing to buy the product. In addition to having an expensive price, consumers have not yet realized the benefits of the product or service. So, they don’t want to have a risk of buying it.
For this reason, usually Price Skimming will be more suitable for products that are luxurious and make customers amazed. So, what makes the product look so?
- The product is very differentiated, which means you will not find the same product features or quality as the product on the market.
- The product was the latest discovery that had never existed before. Examples are electric cars or electric motors at the beginning of their presence.
Generally, this consumer comes from a small portion of the population. In an innovation diffusion theory, generally they will be included in the innovator category or initial adopters, which they want to take risks and pay at a high price for a new product.
Advantages of Setting Penetration Pricing
There are several advantages or advantages that can be felt by business people who apply the penetration pricing strategy appropriately. Some of them are as follows:
1. High adoption and diffusion
Because it is able to apply low prices in the marketing process, penetration pricing allows a product or service to be easier and quickly accepted by customers. Therefore, do not be surprised if many new business people who like to implement a penetration pricing strategy in its marketing strategy.
2. Market domination
Competitors are generally not so ready when facing price penetration. Because, they have little time to react. So with penetration pricing, the company can take advantage of these opportunities in order to get as many customers as possible.
3. Economic scale
With a relatively lower price, automatically the sales quantity will soar. This allows the company to realize the economies of scale and also lower margins.
4. High turnover
The penetration pricing strategy will be able to increase turnover. Because, sales are greater because the selling price is lower. This will later make the supply chain like retailers and distributors become more happy. The existence of good business turnover and also consistent will make a business easier to develop.
Price penetration loss
1. Expectation of pricing
When there is a company that uses penetration prices, most of the customers often expect cheap prices continuously. If there is a gradual price increase, it will arise not satisfied and can they can move on other products or services.
2. Low customer loyalty
You can’t expect your customer loyalty to be high by using this penetration pricing strategy. why? Because generally, consumers who are more pleased with low prices will be easier to switch. What’s more if they can get prices or opportunities from other parties who are more profitable.
3. Destroy the brand image
The image of a brand is very important. If you are too often in applying a penetration pricing strategy, then slowly image on your brand will be destroyed. Customers will claim that they are a cheap brand.
4. Creating a price war between competitors
Every competitor will not let you do a penetration pricing strategy. Therefore, it does not rule out the possibility that the price war will arise. If this price war continues to occur, the level of profitability for the market as a whole will go down.
5. Inefficient long-term strategies
The penetration pricing strategy will be inappropriate when used in a large period of time. There are many cases of companies that use this strategy to lose profits or profits.
Price penetration example
Examples of simple penetration pricing strategies are as did two large grocery, namely Costco and Kroger. Both of them start using this penetration pricing strategy in selling organic food. Margins that can be obtained on ordinary meals tend to be smaller, but vice versa on organic food.
When viewed on demand, organic food has higher demand than non-organic food. For this reason, many traders offer organic food choices at premium prices to increase their profits.
However, the Kroger and Costco companies actually apply penetration pricing. They sell cheaper organic food. Although this strategy might threaten its profit, but by calculating on an economic scale, both are sure to be able to implement this strategy.
Another example of the application of this penetration pricing strategy is like streaming services, food businesses and banks.
Reporting from the Intelligence Node page, one of the services of the service that applies a penetration pricing strategy is a Netflix company.
They are able to offer Free Subscription for the first month for new customers. If free period is complete, the customer must be willing to pay a monthly subscription fee.
The use of the strategy carried out by Netflix is a perfect example, because most people do not object to using the service.
What’s more, the film and the series in it are very complete and also has the choice to be used in a lot of people to make it more economical.
Food and beverage business
You can find this example in the supermarket, because there you will easily find people who share free food samples. Well, it turns out this is a real example of the application of a penetration pricing strategy.
If the customer feels satisfied with the food or drink, they are automatically willing to buy it.
At the beginning of its product publication, many banks offer free administrative fees for customers. However, they will slowly be subject to a monthly admin fee.
Although many customers regret this method, most people already feel comfortable because they have used the bank service.
Thus the explanation of us is about Price Skimming. We can draw the conclusion that Price Skimming is a cheap price bidding strategy for new products or services published to the community. The aim is to attract customer interest, collect customer interest, etc.
However, the price skimming strategy is not done without a financial budget or free. Because, in it you have to provide information on the public that your product has a cheaper price than other competitors.
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