#Penetration pricing meaning trial

Price penetration comes with three major benefits: Rapid market share growth Price Penetration Advantages and Disadvantages In this analysis, we will explore the advantages and disadvantages of penetration pricing, along with examples that illustrate each point. However, this strategy also comes with some drawbacks.

#Penetration pricing meaning trial

By offering lower prices initially, companies can draw attention and encourage trial purchases. Penetration pricing can be a powerful tool for businesses to quickly gain a foothold in the market and attract customers to their new products or services. Penetration Pricing Advantages and Disadvantages However, this strategy can prevent healthy competition and is thus banned in many countries. The situation often leads to a monopolistic position, after which the company raises the price to compensate for losses. But before it became one of the world's largest streaming services, Netflix had taken over the DVD rental business.įig. Netflix was founded by Reed Hastings and Marc Randolph in 1997. Now that we've covered the basic theory, let's walk through a couple of examples. The products are subjected to standardization (e.g., Microsoft computer software) The skimming pricing strategy doesn't work - Competition remains high after the introduction stage. The market is large enough with sufficient demand. It is easy to achieve economies of scale. The product has an elastic demand curve (the change in the price affects the product demand significantly). Also, there's a risk of a price war with other competitors. However, the drawback is if the price remains low, the business may not be able to make a sustainable profit.

As production costs decrease, the company can manufacture more goods and achieve economies of scale. Higher sales lead to bulk purchases with discounts, which brings down production costs. For example, lower prices can increase the acceptance rate and allow the company to capture a substantial market share in a short period. If appropriately applied, price penetration can bring the company massive success.

Once Puzzle Plaza has established its presence and captured a significant market share, the owners gradually increase their prices to align with the market while still retaining their newfound customer base. As the townspeople discover Puzzle Plaza's entertaining games and irresistible prices, word spreads rapidly, making the store a popular destination for families and friends. To draw the townspeople in and introduce them to their unique and engaging games, the owners decide to offer their products at a significantly lower price compared to other board game stores. Imagine a small town where a new board game store, Puzzle Plaza, opens its doors.