Penetration Pricing and Other Strategies
This page delves deeper into penetration pricing and other pricing strategies, including predatory and psychological pricing. It also discusses factors that determine pricing strategies and the impact of social trends on pricing.
Penetration Pricing
Definition: Penetration pricing strategy involves setting low initial prices for new products to encourage sales and market penetration.
Example: Penetration pricing for fast moving consumer goods example could include a new brand of cereal offering introductory low prices to gain market share.
Benefits:
- Encourages consumers to try new products
- Gains market share quickly
Drawbacks:
- May reduce profits initially
- Consumers might have bought anyway
Highlight: Penetration pricing advantages and disadvantages include rapid market entry but potential profit loss.
Predatory Pricing
Used in oligopolies or monopolies to deter new market entrants or push out competitors.
Benefits:
- Can create barriers to entry
Drawbacks:
- Effectiveness depends on price elasticity of the product
Psychological Pricing
Involves pricing strategies that appeal to consumer perceptions, such as pricing at £1.99 instead of £2.
Example: Luxury car brands might use higher prices as part of their appeal, avoiding just-below pricing strategies.
Benefits:
- Can project a premium image
Drawbacks:
- High risk if comparable products are available at lower prices
Factors Determining Pricing Strategy
- Number of USPs/amount of differentiation
- Price elasticity of demand
- Level of competition
- Brand strength
- Product life cycle stage
- Costs and profit requirements
