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Chapter 8

Marketing-based approaches

6.1 Penetration pricing strategy

Penetration pricing occurs when a company sets a very low price for the new product
initially.

 The price will usually be below total cost.

 The aim of the low price is to establish a large market share quickly by
encouraging customers to try the product and then to repeat buy.

 This type of tactic is used, therefore, where barriers to entry are low. It is hoped
to establish a dominant market position, which will prevent new entrants coming
into the market because they could not establish a critical mass easily with
prices so low.

To discourage new entrants

To shorten initial period of the product lifecycle

Economies of scale

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