| John Spacey, January 10, 2016 updated on January 13, 2023
Penetration pricing is the strategy of improving market share with a low price. It is associated with efforts to launch a new company, brand, product, service or technology. The following are illustrative examples of penetration pricing.
FirmsA small IT outsourcing firm enters the market and soon finds it is difficult to compete with large firms at standard industry prices. They cut prices out of a need to establish a customer base and reputation.
BrandsA large cosmetics and personal care products company is being challenged by smaller firms that offer all natural ingredients. They launch a new brand to compete in this market with products formulated to have clean labels with a handful of organic ingredients. They plan to enter the market aggressively with lower prices than the competition for a few months.
ProductsA beverage company launches a brewed tea in a bottle that is nothing but green tea. It is launched into a market that is almost completely dominated by sweetened beverages and bottled water. The marketing team has reason to believe that the idea may strongly appeal to certain consumers. They launch at a low price in an attempt to achieve product diffusion.
ServicesA streaming media service intends to challenge cable TV for dominance of the home entertainment market. They initially set prices far below cable TV to capture market share.
TechnologyA manufacturer uses new materials and methods to create a lighter, high performance snowboard. They initially find that there is little interest in the technology amongst snowboard brands. In order to get the technology out the door, they settle for a low price non-exclusive contract with a major brand. The firm is confident that the technology will catch on once people use it.
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