Penetration Pricing Strategy & Examples | Actowiz Solutions
In a market-driven profoundly by brand loyalty and consumer trust, many consumers are unwilling to change brands or use new products. Barriers to entering the retail market are extremely high due to the demanding consumer base and heavy competition. Retailers have to think ‘out of the box’ to create waves in the marketplace to get the attention of possible customers and change them into faithful consumers.
And that’s where penetration pricing has a role to play. Penetration pricing familiarizes customers with new products at a sharp discount, usually at merchants' loss. Businesses utilize this strategy to attract customers to new products or services to win market share. A penetration pricing strategy anticipates that you’ll make brand loyalty and find customers that love your products, increasing their readiness to spend more.
Let’s go through five penetration pricing examples being put into work. Use one of these skimming pricing examples strategies and invest in the long-term profits, although you have a short-time loss.
Netflix Penetration Pricing
Netflix is an ideal example of proper penetration pricing. We have frequently heard people criticizing Netflix subscription pricing going up or ending the month free subscription. Nevertheless, despite the occasional upset, people are okay with paying higher subscription fees for good content. Currently, Netflix is the market leader having 51% of the streaming subscriptions in the U.S. Other OTT podiums are following suit by arranging penetration pricing to attract new viewers.
Internet Providers Penetration Pricing
Internet providers are infamous for using penetration pricing — much to the disappointment of consumers who see a sudden massive increase in their bills. After a particular period, the pricing increases. For example, Comcast or Xfinity regularly provides lower introductory prices like free or suddenly reduced premium channels and lower incremental costs to upgrade. In the last five years, we guess the firm has augmented market share of the Internet access in areas that serves from around 56 to 64%, as share coming entirely from phone companies. Even though that share shift might look modest, it suggests that customer base of Comcast in the given region is over 60% higher on an average than rivals’, up from about 20%. Most consumers continue to pay higher bills; however, a few jump to new providers providing introductory rates.
Other value providers also depend on penetration pricing. In the market progressively ruled by smartphones, landline providers may utilize penetration pricing to get consumers to buy a landline—a few even package deals alongside internet, cable, and smartphone packages.
Smartphone Providers Penetration Pricing
Let’s take an example of two essential smartphone operating systems using different pricing tactics.
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Android aims at better market penetration using a penetration system. Android phones, having Samsung leading the way, are accessible at a sharp discount or are valued at a much lower cost in comparison to Apple, with the hope that users would be loyal to this brand. This tactic also opens an extensive range of customers up to an Android marketplace, whereas Apple holds a skimming tactic, offering higher- cost products which skim a smaller market share.
An associated penetration strategy common among smartphone providers also utilizes penetration pricing. In this system, providers sell cheaper or accessible smartphones in return for long-term contracts using customers. Consumers feel excited about the cheaper phone and don’t understand that the contract costs much more in the long term than that phone might have.
Gillette Penetration Pricing
In the quickly-moving FMCG space, an active way of differentiating your brands from the competitors, selling parallel products, is by providing disruptive prices if you are new in the market and creating your brand recognition. Gillette is one company that comes to mind while discussing an effective penetration price strategy. Its razors are frequently given away for free or priced lower than competitors, and Gillette has retained its place as a marketplace leader for many years. The earnings Gillette loses by selling razors at lower prices are covered from attachments, razor blades, and accessories which are priced at premium rates.
Food and Beverages Penetration Pricing
Many new foods get introduced in the market using a penetration pricing strategy. Whenever you enter any supermarket, you normally see ads for introductory lower prices for a few fresh items that are ideal cases of penetration pricing. A few businesses even provide packages of newer products, for instance, sponsoring events or offering sample packets to attendees. Kroger and Costco use penetration pricing to sell organic products and increase the demand for these products. With higher margins on these organic products, supermarket chains make money with increased demands and higher sales volumes.
In one more noteworthy example, Starbucks, the finest coffee chain, usually introduces seasonal and new coffees or drinks at lower prices to encourage customers to try new items. When consumers get used to new items and show positive feedback, Starbucks retracts different penetration pricing offers and begins selling these items at non- discounted prices!
Besides these examples, we observe penetration pricing strategies used across industries like hotels, consumer goods, and airlines. Strategically using this pricing strategy could be a secure way of getting loyal customers following and establishing your position in the highly competitive market. AI-driven and intelligent price monitoring solutions can provide retailers with 360-degree insights into the market with competitors in real-time and assist in implementing penetration pricing during the most promising time and pricing points for definite results.
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