Market Penetration Pricing Strategy

If a manager wishes to capture a significant market share or achieve a high sales volume upon the product’s introduction then he or she can utilize penetration pricing . This strategy dictates a low initial entry price, below competitors and the eventual market price, to steal low-end market share. Penetration pricing can result in a faster diffusion and adoption of a new product while disrupting competitor forecasts and marketing. When the firm is explicitly trying to price out competition to form a monopolistic market the firm can be accused of predatory pricing which is illegal in most countries. However, the line separating penetration pricing from predatory pricing is blurry at best and often difficult to prove. However, customers may form long-term expectations of low prices from the product or inferior quality due to the lower price. Furthermore, it has been debated that penetration pricing does not generate consumer loyalty and rather attracts only price-sensitive customers that will consume whichever product is the lowest-priced. This strategy is usually most effective when demand for the product is highly elastic, the market is large enough to justify a mass market, or if there are substantial economies of scale to be had in production.

An alternative to penetration pricing is a sales promotion that offers an initial discount on the product which is set at its long-term market price.

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