Question

Why might penetration pricing potentially negatively impact brand image and product positioning in the long run? Given this risk, why would a marketing manager use penetration pricing? Identify a brand (other than the examples in the chapter) that you believe is engaged in penetration pricing. (500-700 words)

Answer 1

Penetration pricing is the marketing strategy which a brand uses to increases the sale of its newly launched product. This strategy says that marketing managers of the brand usually keeps the price low of the product in initial phase of its launch. Once the product captures the market and attracts the huge customer base among their competitors, they raise the price of that product because customers are now become accustomed to that product. Even if the company raises the price of the product by the minimal amount, they will get the extra revenue or profit. But once company raise the price they fall short of some of the regular customer as they are getting perfect complement of the product in less price, this situation impact the brand of the product. They maybe fall short of those customers who helped company launch their product in initial phase by winning their trust.

Given this risk of losing customers in long run, they still adopts this strategy as this is the perfect and organic strategy according to me to gain the share in market, to attracts the customer towards your product. Assume a situation you are using a washing powder which cost you $2. Company XYZ Ltd. is launching its new washing powder which will long run give competition to the existing brand. If they sell at $2, the situation in the market to attract customer would be very difficult as customers are already getting the existing brand which they are using from few time and know the result of that product. There is some added risk if your powder does not meet the expectation of existing powder. If you sell at greater than $2, there is no point in launching the product at high price, you will never reach out to the customers. If you keep price less than $2, there are chances that you can attract customers as everyone tries to save money, if they get the product at less prices they will take the risk at less prices of using your product.

I came across one of the situation where i closely observed this situation in India. Jio, one of the telecommunication service provide, newly launched recently, have maximum share in the market. Its competitors are operating since very long, but they adopted penetration pricing. They gave the calling and internet services to all its customers for 1 year at no cost. Customers just need to buy the new SIM and no other cost. They gained such a huge base with this scheme. After one year they started charging for its product. When they were not in the market, calling and internet services in India were very expensive.As they launched in free every company in the market had to reduce the prices to the minimal level they can reduce to. Now Jio have the same prices as other brands but maximum share in the market.