Penetration Pricing

What is Penetration Pricing?

A pricing method in which a new product is launched at a deliberately low price in order to gain sales volume and market share quickly. It suits mass markets with repeat purchase and potential economies of scale, but it produces a low margin per unit from the outset and makes a later price increase difficult, because customers have learned to expect the low price.

This definition is part of the Marketing chapter in Cambridge O Level Business Studies.

Concepts related to Penetration Pricing

• market share
• Economies of Scale
• low margin

Common mistakes with Penetration Pricing

• "Penetration pricing means putting things on offer." Correction Penetration is a permanent low opening price to build share. Promotional pricing is a temporary reduction with an end date. One is a strategy, the other a tactic, and they are not interchangeable. What it costs The recommendation mark, because the two produce completely different long-term consequences.