Penetration pricing

The penetration strategy (Latin penetrare penetrate, ) is a part of the price policy in marketing. It refers to a pricing policy strategy in the context of new product introductions. Here, the price is initially kept as low as possible, so as to rapidly gain a large market share. Later, the price will be given if gradually increased. The company hopes to achieve a competitive advantage through the rapid development of the market. The counterpart to penetration strategy is the absorption strategy.

Requirements

Conditions for a successful penetration strategy are:

• The existence of a sufficiently large sales market
• A high price elasticity of demand
• High supplier switching costs (prevention of Churn increase in the price )
• Production and distribution costs must fall if the quantity sold increases
• Sufficient short-term liquidity of the company
• Network effects, which lead to a higher utility of the sequence buyers who are thus ready cash as the launch customer. For example, telephone networks, Internet exchanges.

The Product should also lead to more or less regular payments. Usually, the penetration strategy is suitable only for those who are already the market leader or a monopolist in a closely neighboring market. Because in this case there are often already customer relationships that need to be " expanded " by the new product only on.