Penetrative Pricing: Is It Right For Your Business?

Penetrative Pricing

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You may have heard the term before, you may even be deciding whether that is the right direction for your new product. However, before you make that choice, let’s dive into the pros and cons of penetrative pricing.

What Is Penetrative Pricing?

Penetrative pricing is the strategy of offering a product at a significantly lower price in order to attract customers. It can be a tricky strategy to get right, because it’s easy to fall into the trap of permanently competing with other companies on price.

The important distinction here is that penetrative pricing needs to be temporary, whether you’re a new company, or an existing one pushing a new product. If you enter a market, and your only value proposition is a lower price, good luck. Your margins will be razor thin, and all it takes is for one competitor to lower their price, and you’ve lost your edge.

Instead, penetrative pricing should be a temporary plan that draws people to your product. You can then raise the price later, once you have built up more brand awareness.

Penetrative Pricing Pros

The most obvious benefit is exactly what it’s designed to do: attract customers. There will always be bargain hunters who will jump to the lowest-priced product. Obviously, this is a double-edged sword, and you need to be careful as they will jump ship when you raise the price. However, the second benefit will hopefully negate the loss of bargain hunters.

Penetrate pricing allows you to increase your brand awareness, simply because more people are using and talking about your product. Even though you may lose the customers who are only there for the low price, you will be attracting more loyal ones once the price goes up.

Alternatively, there is a way to encourage even more brand loyalty and negate some bargain hunter loss. Some companies will allow the early adopters to keep paying the lower price, only enacting the higher one on new customers.

Finally, this pricing model can actually help companies build economies of scale. Certain products need higher volumes in order to keep the price of manufacturing individual units at an acceptable price. Penetrative pricing can help achieve this.

Penetrative Pricing Cons

As we have mentioned above, penetrative pricing is a tricky business. It is something that you must do extensive research on before implementing as raising the price even a few dollars more than a customer will accept, could mean the end of your business. You’re always going to lose some customers when you raise the price, but the goal is to not lose all of them.

Another thing you should be aware of is that a lower price inevitably comes with a lower brand value, something that is hard to earn back. When people see your product as a “value brand”, it takes careful messaging to change their minds. Even if you position the pricing as clearly temporary, it can be a hard image to shake.

Finally, if you’re employing this strategy because you’re carefully watching the competition, you better believe they’re watching you too. A competing company may have the wiggle room to lower their price to temporarily block your penetrative pricing attempts. Once your brand is dead in the water, it’ll go back up to its original price.

Want to learn more about penetrative pricing and bringing a product to market? You’ll want to check out the latest episode of The Thinc. Underground Podcast!

This week’s episode welcomes inventor, innovator, business leader, and founder of Tiara Bliss Inc., Zuly Matallana! Join host Arif Khan as he speaks to Zuly about her international and inspiring journey from idea to invention to market penetration. “It’s been a blessing. To see people wearing my product, and even thanking me for making it!”

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