#SKIMMING AND PENETRATION PRICING TV#

Alongside this, they promote all their latest and most popular TV shows and movies. They run campaigns offering new customers a special deal, like $10 per month for the first six months. Subscription streaming services like Netflix commonly use penetration pricing. If a company offers a lower price but the product quality is far inferior to competitors, it will struggle to convince customers to switch. Products must also be comparable for this strategy to work. High sales volumes will cushion the blow of reducing prices. With high-demand, mass-market productsīecause businesses must take a hit on profit margins while using penetration pricing, this model is usually only effective when there is high demand. Customers may be easier to lure away from competitors for a better price and a similar or better value proposition. Penetration pricing is especially effective in markets where customers are price-sensitive and not especially brand-loyal. By lowering its sales price for a fixed period of time and conducting marketing activities to generate awareness of its offer, it can motivate customers to switch from competing products to theirs.

If a company currently wants to increase its market share, e.g., from 10 percent to 20 percent, it could consider a penetration pricing strategy. This generates brand awareness and encourages product uptake. Product launchĬompanies launching a new product or service into an existing market might consider a penetration pricing strategy to make a splash. Like all pricing strategies, penetration pricing has specific use cases where it’s more effective. When should companies use penetration pricing? However, they can recoup this through increased sales and by increasing prices over time. The company’s profit margins will reduce during this penetration period. They are then nurtured to become brand loyal. After customers are enticed by this better deal, the company works to retain those new customers by familiarizing them with the product. For example, a meal subscription service might offer new customers 50% off their first month’s order. How does penetration pricing work?Ĭompanies using a price penetration strategy will purposely undercut competitors to encourage customers to switch to their offering. It is also closely linked to competitor pricing, where companies strategically set prices above, the same, or below competitors. This is where companies sell goods or services at a loss to attract more customers, with the intention of upselling them in the future.

This pricing model is similar to loss-leader pricing. A penetration pricing strategy aims to take market share from competitors, with the goal of retaining customers and increasing prices over time.īusinesses engaging in a penetration pricing strategy are prepared to take a hit on profit margins in return for increased sales volume and market share. It allows companies to penetrate a market by offering lower prices than their competitors for a specific period of time. Penetration pricing does exactly what it says on the tin. No one wants to engage in a price war, but managed properly, penetration pricing strategies can help businesses reach their market share goals without over-sacrificing margins. So you want to take market share from your competitors, but how can you do it? Price is one important lever you can pull to attract customers to switch from your competitors to you.

Skimming and penetration pricing