It can later increase prices if it sees loyal customer followership. Once it captures the market share, it can establish its customer base. Since the company’s only advantage here is to offer lower pricing than its competitors, it is a risky strategy.įinally, the company aims to establish brand loyalty. The next objective is to capture the market share as much and as quickly as possible. It means the company aims to generate high volume sales with low product pricing. The foremost and important objective of penetration pricing is to derive economies of scale. It comes with a few objectives to gain profits.

Market penetration pricing is used by companies without a competitive edge over rivals. Otherwise, it will be unsustainable for the company to operate with a very low profit margin. The low profit margin is compensated by high volume sales initially.Ī company using penetration pricing would also want to lower its cost of production. Once a low price is set, the product is launched in the market with to drive big sales up front. Market challengers often achieve this objective by setting very low profit margins. Then, it considers the market prices of the competitors.įor penetration pricing to succeed, the seller’s prices should be visibly lower than its competitors. The company analysis its marginal cost of production. It is used when a company’s product does not have any differentiation or a competitive edge over rivals. The market penetration strategy works for new entrants with existing products.

Usually, these companies are the market challengers rather than market leaders. The market penetration pricing is set by new market entrants. This pricing strategy sets very low product prices to capture market share. When the seller company sets too low prices, it is also called predatory pricing. It aims to attract more customers and quickly penetrate a market. Penetration pricing is a pricing strategy where the seller sets low prices initially. Let us discuss what are penetration and skim pricing strategies and their key differences.

Both strategies come with different objectives. Penetration pricing and price skimming are two contrasting pricing strategies.