Penetration strategy

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The penetration strategy (Latin: penetrare , to penetrate) is part of the pricing policy in marketing . It describes a pricing strategy in the context of new product launches. The price is initially kept as low as possible in order to quickly gain a high market share. The price will be increased gradually later if necessary. The company hopes to gain a competitive advantage by entering the market quickly . The counterpart to the penetration strategy is the skimming strategy .

requirements

The prerequisites for a successful penetration strategy are:

  • the existence of a sufficiently large sales market
  • a high price elasticity of demand
  • high costs to switch providers (prevention of customer churn when prices increase)
  • Production and distribution costs must fall when the amount sold increases
  • Sufficient short-term liquidity of the company
  • Network effects that lead to a higher benefit for the subsequent customers, who are therefore more willing to pay than the first-time customers. E.g. telephone networks, internet, stock exchanges.
  • Experience curve effects that lead to cost advantages with higher cumulative production quantities.

The product must also result in more or less regular payments. The penetration strategy is usually only suitable for those who are already market leaders or monopolists in a closely related market. Because in this case, customer relationships often already exist that only need to be "expanded" further by the new product.

Empirical knowledge

Martin Spann, Marc Fischer and Gerard Tellis analyze the frequency and choice of dynamic pricing strategies in a complex dynamic market with 663 products (digital cameras) 79 different brands. The empirical analysis shows that, contrary to the recommendations in the literature, the majority of products do not follow a skimming or penetration strategy. There are five different price strategies: skimming (20% frequency), penetration (20% frequency) and three variants of a market price strategy (60% frequency) in which the products are introduced at the market price. With a skimming strategy, the products are launched on average 16% above the market price. With a penetration strategy, the market launch occurs on average 18% below the market price. In this market, companies usually pursue a mix of strategies across their product portfolio. The choice of a certain strategy for a product depends on market, company and brand characteristics such as the intensity of competition, position as a market pioneer, brand reputation and experience curve effects.

See also

Individual evidence

  1. ^ M Spann, M Fischer, GJ Tellis: Skimming or Penetration? Strategic Dynamic Pricing for New Products . In: Marketing Science . 34, No. 2, 2015, pp. 235–249. doi : 10.1287 / mksc.2014.0891 .