This is a common practice to capture the attention of new customers, but then the cable service company can increase costs after the first year of service. With this low cost, they may be able to entice customers to sign up for their service as a first-time cable purchaser, or they may find success at getting a customer to leave the competitor and sign up with them instead. New Century Cable Communications, a cable television company, tries to capture more customers by offering an initially low cost for new bundle cable subscriptions that include phone and internet. In order to understand the concept of penetration pricing better, review these examples of penetration pricing in action: Example one See your instant resume report on Indeed Get recommendations for your resume in minutes Penetration pricing examples Related: 10 Best Customer Loyalty Programs That Work (With Examples)

With an overall positive experience, customers are more likely to give their loyalty even after the price of the product or service increases. This may mostly be because the competition isn't able to offer the same low price and realize the same gains at the same time.īrand loyalty: Penetration pricing gives a customer the opportunity to switch their loyalty to a new company. Penetration pricing, because it entices customers to purchase from your business over the competition, is a natural deterrent for competing companies that want to enter the market. They may connect with family members, friends, coworkers or neighbors who they believe would also benefit from purchasing the product or service at the low cost.īarrier to entry: For many businesses, it's advantageous to develop ways to keep the competition from entering the market.

Word of mouth: Early customers of your product or service who take advantage of the set penetration pricing can see this model as an act of goodwill and tell their contacts about their experience.

This contributes to a stronger market penetration rate that can surprise the competition and take them longer to react or develop their own ways to enter the market with their competing product or service. Related: 10 Marketing Strategies To Grow Your Business Uses of penetration pricingĮven though businesses risk losing the customer if they aren't able to establish brand loyalty during the penetration pricing phase, there are several benefits and uses for penetration pricing for any organization, including:Ĭost control: Penetration pricing helps create cost control within the company, which means there is greater efficiency from the first launch of the product or service.įast market penetration: A lower initial price point for a product or service can help it enter the market quicker and more successfully. Without continued customer loyalty and purchases, a business may realize an overall monetary loss in using the penetration pricing strategy. That's why the initial contact with the customer and all throughout the initial price increase is the time when a company should offer ways to connect with the customer and provide something of value. The main risk in using penetration pricing is that a customer will decide to purchase elsewhere or go back to the competition once the pricing increases or the introductory period is over. During this introductory pricing stage, any business has the chance to showcase what they have to offer long-lasting customers, so stakeholders may develop supplementary programs to help earn the loyalty of the customer who chooses to try out their product or service. The ultimate goal of using penetration pricing is to keep the purchaser as a loyal customer even when the pricing of the product or service goes up after an initial offering.

Penetration pricing is important because it provides the company with the opportunity to earn the sales or loyalty of a new customer who may have gone to the competition instead. This lower cost can entice customers to take the step to purchase a product or service versus one that may have entered the market at a more typical price. Penetration pricing is a marketing strategy focused on lowering the cost of a product or service that's new to the market in an attempt to attract customers to purchasing it. View more jobs on Indeed View More What is penetration pricing?