All about penetration pricing strategy

by Swetasree on 12/02/2018
As an e-tailer, you must already know that it’s all about setting the right price when it comes to effectively catering to your target audience. A well-articulated penetration pricing strategy will help you break into an already established product category and gain traction. Initially, you’ll have to put up your offerings for sale at a low price with the idea of using the wide price gap to push customers toward your brand. The fundamental idea is to advertise your products as a cost-effective option in comparison to your competitors.

By adopting penetration pricing strategy as a part of your marketing initiative, you can:

Shape customer preference

Customers are psychologically inclined toward purchasing products which are priced at a rate that is substantially lower than what the nearest competitor is offering. Usually, the adoption rate of a new product is exponentially high when you embrace penetration policy as part of your pricing strategy.

Edge out your competition

If you use penetration pricing to carve out your niche in the market, your competitors are likely to be caught off guard. They are left with very little time to react and even if they manage to do so, they will find themselves in a position where they are unable to match your price point. This is because an established line of business has to sustain a stable line of income to meet expenses. Since cutting down on pricing is not an option for your competitors, you are bound to gain some leeway during your initial days.

Create goodwill for yourself

When your products are priced cheaper than those of your competitors’, it is more likely that your customers will stay loyal to your brand even if you raise prices marginally after some time. What’s more, your customers will, by themselves, generate further leads for your products by promoting them through word-of-mouth or on social platforms.

Achieve cost efficiency

This point needs no explanation. By keeping your product pricing low when compared to your competitor brands, you control cost. Penetration pricing strategy only lets you make a certain amount of money. Naturally, your costs will be aligned to that. Not only do you control cost in this regard, but you also end up achieving cost efficiency in the longer run.

Satisfy stakeholders

Penetration pricing strategy enables quicker turnover and helps generate profits for subsequent stakeholders down the value chain – retailers in most cases. Every operator further down the distribution channel, ending with the consumer stands to benefit from this strategy in one way or another.

Ensuring competitiveness in the long run

When you adopt penetration pricing, not only do you gain an advantage over your existing competition, but you also deter other new entrants in the market. Very few newcomers would agree to set their prices as low as you have, but in your case you have the financial reasoning and economic stability to do so. With a penetration pricing strategy in place, not only will you be able to eat into the profits of existing wholesalers, but also mitigate the risk of newcomers making too much of a splash. This ensures that you stay competitive in the long run.

At Amazon, we let you implement marketing strategies such as penetrative pricing. Flash sales, discounted pricing, and bulk order generation, are several such possibilities you can explore when you register as a seller on Amazon. Register today and achieve the best of penetration pricing.

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