Profit and Loss Statement. This approach is used where a substantial competitive advantage exists and the marketer is safe in the knowledge that they can charge a relatively higher price. This delineation of explicit and implicit prices comparison is further elaborated in a complex conceptual framework a model presented in Fig. A penetration pricing strategy might be right for you if you are in a position to rapidly gain market share, bring down unit costs and meaningfully price low to create barriers to entry. Businesses who rely more heavily on the internet to generate sales e. To get a better idea of this effect across different cultures, consider how drastically the introduction of generics into the pharmaceutical market in either the U. In this scheme, providers sell cheap or free smart phones in return for long-term contract with customers.
Few organizations track market share though it is often an important metric. The 4P's 4Ps can then be utilized to form a marketing plan to pursue a defined strategy. Subscribe to our free newsletter , or join the Mind Tools Club and really supercharge your career! There are many ways to price a product. You'll have to consider a number of factors when you're setting your price.
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Distribution effectiveness as measured by history of relations, the extent of channel utilization, financial stability, reputation, access to prospects and familiarity with your offering. Targets the mass market and high market share. If you set your price intelligently, you've got a chance of generating good sales and high profits. If any of them change substantially the strategy should be reevaluated. Most organizations track their sales results; or, in non-profit organizations for example, the number of clients. Thus, the definition of IBM's "corporate mission" in the s might well have been: A penetration pricing strategy might be right for you if you are in a position to rapidly gain market share, bring down unit costs and meaningfully price low to create barriers to entry.
A marketing strategy should be centered around the key concept that customer satisfaction is the main goal. This strategy works best during a product's growth phase, since the product already has a positive reputation. Only if it fits the needs of these objectives should you choose, as we have done, to use the framework of the 7 P's. Disadvantages While often profitable, penetration pricing has some major drawbacks including customer dissatisfaction, and false loyalty. But, in reality, it's one of the most important factors that you will need to consider when bringing your product to market.