Price is one of the most flexible elements of the marketing mix, which interferes directly and in a short term over the profitability and cost effectiveness of a company. Pricing strategy is the policy a firm adopts to determine what it will charge for its products and services.
Strategic pricing requires a stronger relationship between marketing and the other sectors of a company.
For new product, the pricing strategy will be based on a penetration price policy looking to establish long-term growth and return through building the brand.
Penetration pricing also known as promotional pricing, involves temporarily setting prices below the market price or even lower than cost price. It is used to quickly gain market share by setting an initially low price to entice customers to purchase.
This is often used to maximize rapid market entry into new markets, or the market entry of new products into existing markets. It is also designed to gain widespread market acceptance, and capture a large market share quickly. Company cost in producing product are an important factor in setting prices. Based on production cost company can set temporary price reduction to stimulate sales or store traffic.
The strategy was used effectively in the early days of mobile telephony for telecommunications providers to gain sufficient subscribers to sustain their networks. Dot-com companies are particularly likely to engage in pricing products below cost, or even giving them away for free to build a strong customer base.
Other less popular pricing methods include general pricing approaches like cost-plus pricing, break even pricing, value-based pricing, and competition based pricing.
Penetration Pricing Strategy
