A Case Study With Sony On Penetration Pricing As Global Pricing Strategy

Meaning of Penetration Pricing
This is a marketing strategy used by firms to attract customers to a new product or service. Penetration pricing is the practice of offering a low price for a new product or service during its initial offering in order to attract customers away from competitors. The reasoning behind this marketing strategy is that customers will buy and become aware of the new product due to its lower price in the marketplace relative to rivals. It can often increase both market share and sales volume. Additionally, the high sales volume can also lead to lower production costs and higher inventory turnover, both of which are positive for any firm with fixed overhead.
The tagline “special introductory offer” is the classic sign of penetration pricing. The aim of penetration pricing is usually to increase market share of a product, providing the opportunity to increase price once this objective has been achieved.
Penetration pricing is, therefore, the pricing technique of setting a relatively low initial entry price, usually lower than the intended established price, sometimes lower than the costs too, to attract new customers. The strategy aims to encourage customers to switch to the new product because of the lower price.
Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume. In the short term, penetration pricing is likely to result in lower profits than would be the case if price were set higher. However, there are some significant benefits to long-term profitability of having a higher market share, so the pricing strategy can often be justified.
Penetration pricing is often used to support the launch of a new product, and works best when a product enters a market with product differentiation and where