Ask a Tutor a Question. Cost Impact Companies sometimes use penetration pricing in combination with efforts to minimize costs on products and supplies. He has been a college marketing professor since Kokemuller has additional professional experience in marketing, retail and small business. The reasons behind adopting penetration pricing are as under:. In case of penetration pricing, the profit margin is low, whereas, in skimming pricing, the profit margin is very high. To properly execute a penetration-pricing strategy, the sponge manufacturer first must gear up for mass production and then launch a sizable advertising campaign to publicize its new low-priced sponge.
Odd-even pricing occurs when a company prices a product a few cents or a few dollars below the next dollar amount. This strategy of penetration pricing is vital and highly recommended to be applied over multiple situations that the firm may face. Learn about the many strategies companies use to increase the market share of their business and ultimately their profits. Explain how trade allowances work.
The product's contribution to total firm profit i. This article currently has ratings with an average of 4. This page was last edited on 12 April , at To answer "what does it mean to purchase something at wholesale prices" is a different issue. Pricing method whereby the selling price of a product is calculated to produce a particular rate of return on investment for a specific volume of production.
Views Read Edit View history. Profit and Loss Statement. In some countries there is more tax on certain types of product which makes them more or less expensive, or legislation which limits how many products might be imported again raising price. While many new companies use this technique to draw attention away from their competition, penetration pricing does tend to result in an initial loss of income for the business. The Reliance Company followed penetration pricing strategy when it introduced mobile phone. Business usually start with a high price and it will lower over time so this strategy is mostly used by technology products.