Penetration pricing is a pricing strategy whereby an organisation introduces its goods or services to consumers at a comparatively lower price than the existing market price. The fundamental objective of such an approach is attracting consumers to the product in the hope that the consumer will establish a fondness or a need for the product. As a consequence, organisations use this strategy as a means to ultimately gain a higher market share for a particular product or service. Once this has been achieved, organisations hope to increase the price.
It is apparent that penetration pricing works on the assumption that price sensitive customers, also referred to as ‘cherry pickers’ (Kalish, 1985), switch brands when prices for substitutable products are lower. If a firm adopts a price penetration strategy when entering a new market, or when entering a new product into a market they are already working within, they will set a low price in order to try to undercut competitors. Such a strategy has the overall aim of escalating market share rather than achieving short term profits.
All things considered, it can be understood that a penetration pricing strategy is aimed at generating sales among consumers who look for a 'good deal'. The future of an organisation which adopts such a strategy potentially lies with its consumers. If a consumer continues to purchase from the organisation when prices increase over time, then the strategy has been successful. However, if consumers only choose to retain their loyalty to a given brand whilst a penetration pricing strategy is in action, once product prices have been increased further down the line consumers could switch; proving the strategy to be unsuccessful. Organisations anticipate that consum...
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... with each other. A decrease in price will be offset with a rise in demand and vice versa, leaving TE unchanged. The two areas show price penetration (blue arrow) and price skimming (red arrow).
As penetration pricing lowers product costs drastically (sometimes to the point where a product can become a loss leader) price elasticity of demand plays a crucial role within the pricing strategy. Price elasticity of demand has been defined as ‘measuring the degree of responsiveness of the quantity demanded of a commodity to changes in its price’ (Beardshaw, Brewster, Cormack, & Ross, 2001). It measures how consumers react to a change in price. This is of great importance when grasping the concept of penetration pricing. In order for such a strategy to thrive, the product being sold at such a low price needs to be one for which consumer demand is highly price elastic.
A couple of Squares has a limited capacity for which to produce their products and smaller companies tend to have larger fixed costs than bigger companies. Therefore, A Couple of Squares must maximize profits in order to ensure that they will stay in business. A profit-oriented pricing objective is also useful because of A Couple of Squares’ increased sales goals. A Couple of Squares increased their sales goals due to recent financial troubles. Maximizing profits is the easiest way to meet these sales goals due to the fact that A Couple of Squares has limited production capacity. The last key consideration favors a profit-oriented pricing objective because A Couple of Squares offers a specialty product. A specialty product often has limited competition, therefore can be priced on customer value. Pricing at customer value will maximize profits as well as customer satisfaction. A Couple of Squares’ lack of production capacity, increased sales goals, and specialty product favor a profit-oriented pricing
As, perfect competitive, where there are many firm competing, none of which is large and freedom to entry and all firm products are homogenous products. Slomans, Wride and Garatt (2012) states firms are price takers. There are so many firms in the industry that each one producers an insignificantly small portion of total industry supply , and therefore has no power whatsoever to affect the price of the product since if firms rise the price, customers can choose another firm to consume which are lots of firm in market. Therefore, it faces a horizontal demand ‘curve’ at the market price: the price determined by the interaction of demand and supply in the whole market.
Have you ever wondered why do prices end with .99 or why it is that business are always making some kind of deal? Are these deals as beneficial as the customer thinks they are? What about the items priced higher than usually. Most people tend to think the higher the price the better quality right? Well, these are some of the topics this paper is going to help you better understand. Price points, Prestige Pricing, and Odd-evening pricing are all common price games used in the business world today. Price points are the different prices stores use to manipulate the consumers into buying what they want them to buy. I am sure everyone has wondered exactly what goes into the pricing of the items they purchase or what is it about these deals that keep luring me into the stores. Price gaming is a tricky business and businesses love how well it can manipulate the customer into believe and thinking a certain way. Showing you these three common price games will help you better understand and help you evaluate your purchasing decisions a little better.
“Price discrimination is the practice of setting a different price for the same product in different segments to the market.” (Pricing Strategies, 2017) In new markets we have entered, that the competition has not entered, we will extensive rebates so we can make a name for ourselves in the new markets. This way, when the competition decides to enter we will already be there with a strong brand name. In established markets we will adjust pricing to closer match the competition. The performance of the computers and the additional sales and service staff will keep them coming back for
The company subcontracted the production of the heater/blower unit and manufactured the heating covers in-house.... ... middle of paper ... ... The penetration pricing strategy will attract sales selling these products separately because the main product (heater/blower unit) will be sold at a discount and the complimentary product will be marked up.
Elasticity is also prominent to businesses. The price elasticity of demand is very important for companies to determine the price of their products and their total sales and revenue. Newell showed that by cutting the price of the Left 4 Dead game in half to $25 during a Valve promotion, its sales increased by 3000 percent (Irwin, 2009)viii.
Pricing is an important aspect of every business. Chief Financial Officer’s (CFO) use pricing to create financial projections, establish a break-even point, and calculate profit and loss margins (Power Point, 2005). It is the only element in the marketing mix that produces revenue. Price is also one of the most flexible elements of the marketing mix as it can be changed very quickly. This is usually done to beat competitor prices in an attempt to fix the product’s market value position very low (Anderson & Bailey, 1998). After all, high prices make it difficult to become the market share leader. The leading US retailer, Wal-Mart, is an expert at low product pricing as evident in 2004 with $250 billion dollars in sales to their 138 million weekly shoppers. However, they are also responsible for reducing prices so low that it drives specialty stores out of business. This is the effect Wal-mart has had on many toy stores and has almost closed the doors of the famous toy store Toys “R” Us Inc.
Pricing and retail strategy is a key component of any business. These strategies play a major role in a customer’s perceptions of a business. Price is almost always a key factor. “Speak to any average consumer and mention the names of some high quality, leading businesses. The chances are high that one of the first words they will use is "expensive". Not "excellent service", "marvelous range" or even "helpful staff" (2006). Wal-Mart uses an everyday low price pricing strategy which has been a massive success for the company.
price as the major decision-making tool for customers (“Global Consumer Electronics”, 2013). This lack of
An oligopolistic market has a small number of sellers dominating market share and therefore barriers to entry are high. These sellers are highly competitive and do not act independently of each other. Access to information is limited so sellers can only speculate of their competitor’s actions. Sellers will take advantage of competitor’s price changes in order to increase market share.
Intuitively, a cost-plus approach sets a lower boundary for the selling price. Yet to pitch a competitive price on the market, it takes more than that. The demand forecast advocates opting for the lowest selling price which yields the highest return. A market penetration strategy necessitates thorough knowledge of the selling prices of the nearest competitors and their retaliation potential. Ideally, the lowest price in the market of £10,400 dictates the upper ceiling of AUDI’s price discretion. However, setting initially a too low price in the hope for increasing it subsequently is not a viable option, as prices are somewhat inflexible upward. Instead, costs have to sink in the long run. Nevertheless, claiming a larger market share will allow AUDI to deftly climb the steep learning curve, lower its costs and further mobilize against market followers. A high price elasticity of demand insinuates that profit margins will continue to soar, if selling prices are reduced any further. As the point of maximum profit is apparently not yet reached, the company is advised to extend the range of the forecast. But is the highest profit naturally the best profit?
One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.
...n the companies will have to decrease the price otherwise the product will not be sold at higher prices and the revenue would not be as large as companies would like to.
The main topic for this Extended Essay is to analyze the effectiveness of company’s market strategy. A marketing strategy can be defined as a process that helps a business to optimize the opportunities in order to complete business objectives, which mainly gain profits. It includes all basic and long-term field activities of marketing that deal with the analyzing of initial strategy, evaluation of the strategy, and making of a new strategy if the initial strategy is found to be ineffective or even might cause loss. (Homburg, Kuester and Krohmer 2009) To make sure the effectiveness of marketing strategy, its crucial to establish the right marketing mix which cover all the element needed in marketing a product. (Clark, et al. 2009)
Price is what a buyer must give up to obtain a product. It is often the most flexible of the four marketing mix element that the price is the quickest element to change. A marketer can raise or lower prices more frequently and easily than they can change other marketing mix