The way to mitigate this risk is to make it clear that the price offer is time-limited. Your competitor may cut their price again and so on. If they do, then you will either have to abandon your penetration pricing strategy or cut your own price. Your competitors may elect to retaliate by cutting their own prices. They also require you to deliver on customer experience. In particular, remember that penetration pricing strategies tend to work best when supported by great marketing. You can, however, mitigate it with careful management.īe very careful not to overstretch yourself. Can be relatively high riskĪnything that requires a large upfront investment in the hope of longer-term profits is a relatively high-risk strategy. You can then use your purchasing power to negotiate the best possible deals with your suppliers. For example, if you’re anticipating that your penetration pricing strategy will prompt high demand, you can place bulk orders. You cannot get around this but you can manage it. Fortunately, these can all be managed with an effective penetration pricing strategy. Penetration pricing is not a guarantee of success. This is the starting point for building true brand loyalty. It will, however, potentially allow you to start building relationships with customers. Penetration pricing itself will not build brand loyalty. It can also get you increased press coverage. This can help you to generate organic or viral marketing. When people find a great deal, they often want to share it. This means that penetration pricing can allow you to build strong relationships with them too. Build relationships with key partnersīrands that generate high sales are very popular with their key partners such as wholesalers and retailers. This means you can potentially benefit from economies of scale. With penetration pricing, you generally aim to have a high inventory (in expectation of a high inventory turnover). You also gain a high level of credibility and trust. You become one of the driving forces in your sector. The benefits of being a market leader go way beyond just having a sizable market share. It may even encourage some of your established competitors to leave the market. Penetration pricing can help to deter other competitors from entering the market during the promotional period. It therefore makes it easier for them to justify trying it out. Offering them a discount reduces their risk. These are typically people who were interested in that area but not convinced enough to pay the regular price. Penetration pricing can help encourage new customers to the market for your product or service. Encourage new customers to try your product or service One of the major aims of penetration pricing is to encourage people who already buy a similar product or service to try your alternative instead. Here are the main benefits of penetration pricing. Penetration pricing has helped to produce some of the world’s biggest brand success stories. Consumers (and marketers) often refer to it as an introductory special offer. In brief, penetration pricing is the strategy of setting a low price for a product or service when it is initially placed on the market. With that in mind, here is a straightforward guide to the advantages and disadvantages of penetration pricing. There are, however, potential pitfalls you need to avoid. Used astutely, penetration pricing has many benefits.
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