Penetration pricing is a valuable practice which is aimed at setting a low price for specific category of goods or services, with the purpose of expanding market share. The integrated price is set very less which does not facilitate the seller to reap profits. The path of penetration pricing needs to be followed by paths that are described below:
- This strategy aimed at driving competitors who need to move out of marketplace. This enables the company to reap high end prices without the fear of price competition to stands in competition with other counterparts
- Sellers are aimed to employ excess production capacity to make the products available. It reaps marginal cost to manufacture excess capacity that is set low so that it endures penetration pricing for some time.
- The sellers have the option of obtaining market share which helps the seller in settling down the manufacturing costs owing to a huge production scale and large purchasing volumes
For a new entrant, it is common to follow the process in penetration pricing to fetch initial block of market share. This technique is mostly applied in a scenario wherein a new market entrant fails to find a unique feature in the product offered so choose to tag it with a different price. Any business unit that aims to follow a penetration pricing strategy must employ substantial financial resources as it is at a high risk of incurring losses in the initial stages of this strategy implementation. Penetration pricing is a highly useful and effective strategy that is extremely successful in a market that features a large number of identical products as it hands over the opportunity to bring down the prices when the production happens in large volumes. In a scenario when a firm gets hold on a high amount of sales volume by employing this effective strategy, this technique is set as industry standard known as de facto. It therefore enables the firm to defend its market position.
Penetration Pricing assignment help also talks about its evaluation techniques. It is discussed as a useful method followed by many large-scale companies with high tech resources. This enable the firm to limit the prices and stand firm against the competitor’s attempts to surpass the same. however, this approach is not suggested to be followed by small scale companies that have a poor resource pool since it fails to cover the costs by the paltry margins it repass from penetration pricing.
Penetration Pricing Assignment Discussed the Advantages of this Approach
- Adoption and Diffusion – Defining the term diffusion, it is a popular process or technique wherein customers accept a new product or service. Also, adoption is a standard process wherein the acceptance more or less relates to psychological acceptance of the product by the consumer.
- Channel Benefit – This technique develops a steady turnover which aims to keep the retailers and distributors content.
- No competition in the beginning – As and when penetration pricing gets introduced to the competitors, it is leaves them with no reaction time.
- Goodwill developed among customers – When the first deal is hit, customers tend to return to manufacturer in future. The added goodwill manage product promotion by means of "word of mouth recommendation".
- Cost efficiency – It is essential to keep the price low, by controlling the cost to attain efficiency.
- Keeping competitors at inlet – When a producer gives consent to penetration pricing, it aims at reducing the product price to prohibit competitors from market entrance. The competitors thus fail to enter the market since they fail to lower the existing price range.
This technique is also discussed as Predatory pricing wherein a producer sets the initial price low to prohibit its counterparts from entering the competition with their products. Since the competition is eliminated, the producer rises the price and thus gathers monopoly in the market.
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