The company’s ability to lower costs due to higher sales enables businesses to further reduce prices.įor goods that other brands are already selling on the market, businesses use penetration pricing. Consequently, even though the company’s profit margin is low, it can still make money by making more sales. Due to the product’s low price, many customers are forced to purchase it, leading to high sales for the company. When deciding on a product’s price, the company adds a small markup to its cost of production. In a pricing strategy known as penetration, a new product is released into the market at a low price in order to gain as much market share as possible. We will go into detail about these two tactics in this article. Companies have two options at this stage: the price-skimming strategy and the market-penetration pricing strategy. The initial stage, where the business must set the price of its new product for the first time, is the most difficult one in this regard. Additionally, the pricing strategies are modified as the product progresses through its life cycle. Three factors are taken into account by a business when determining the price of its products, i e. The cost of production and the profit margin that the business wants to charge its customers, which would be its main source of income, are both factored into the price of a product. Price is one of the most important elements of the marketing mix. Penetration pricing uses lower prices to build a customer base for new products or services. Price skimming sets prices higher to attract customers most interested in the product or service to maximize short-term profits.
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