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Marketing Strategy, Penetration Strategy

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Marketing Strategy, Penetration Strategy
Introduction Pricing is an important strategic issue because it is related to product positioning. There are many ways to price a product, eg. price skimming, penetration pricing, etc. Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, and then lowers the price over time where a new, innovative, or much-improved product is launched onto a market. The objective with skimming is to “skim” off customers who are willing to pay more to have the product sooner; prices are lowered later when demand from the “early adopters” falls. The success of a price-skimming strategy is largely dependent on the inelasticity of demand for the product either by the market as a whole, or by certain market segments. The main objective of employing this strategy is to benefit from high short-term profits and from effective market segmentation. Penetration pricing involves the setting of lower, rather than higher prices in order to achieve a large, if not dominant market share. This strategy is most often used businesses wishing to enter a new market or build on a relatively small market share. This will only be possible where demand for the product is believed to be highly elastic, penetration pricing strategy may also promote complimentary and captive products. The main product may be priced with a low mark-up to attract sales (it may even be a lossleader). Customers are then sold accessories (which often only fit the manufacturer’s main product) which are sold at higher mark-ups. A successful penetration pricing strategy may lead to large sales volumes/market shares and therefore lower costs per unit. The effects of economies of both scale and experience lead to lower production costs, which justify the use of penetration pricing strategies to gain market share. Penetration strategies are often used by businesses that need to use up spare resources (e.g. factory capacity). Burger King Burger King (BK), the second


References: Marketing Minds (n.d). Apples’s Branding Strategy. Retrieved October 17, 2011 from http://www.marketingminds.com.au/branding/apple_branding_strategy.html#top Bobette Kyle (n.d). 7 Pricing Strategies That Improve Profit. Retrieved October 17, 2011 from http://www.websitemarketingplan.com/techniques/pricing2.htm/ James E. Gurun & Susan K. & Fenghua W. (2002) Pricing Strategy. Retrieved October 18 from http://www.netmba.com/marketing/pricing/ Wikipedia. (n.d). Pricing Skimming. Retrieved October 17, 2011 from http://en.wikipedia.org/wiki/Price_skimming Wikipedia. (n.d). Penetration Pricing. Retrieved October 17, 2011 from http://en.wikipedia.org/wiki/Penetration_pricing Wikinvest (n.d). Burger King Holdings (BKC). Retrieved October 19, 2011 from http://www.wikinvest.com/stock/Burger_King_Holdings_(BKC)#Competition Arthur Allenlin (October 20, 2009). Coach Brand Profile. Retrieved October 19, 2011 from http://www.wikinvest.com/stock/Burger_King_Holdings_(BKC)#Competition Anjali Khurana (December 15, 2010). Marketing Strategy of Coach Inc. Retrieved October 20, 2011 from http://www.managementparadise.com/forums/marketing-management/210745-marketing-strategy-coachinc.html Tutor2u (n.d). Pricing Strategies – Skimming. Retrieved October 18, 2011 from http://tutor2u.net/business/marketing/pricing_strategy_skimming.asp Tutor2u (n.d). Pricing Strategies – Penetration Pricing. Retrieved October 18, 2011 from http://tutor2u.net/business/marketing/pricing_strategy_penetration.asp
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