Question

Explain the below mentioned pricing strategy:

Penetrating pricing strategy

Answer 1

This strategy involves setting a low price in the initial stage so as to make the brand quickly popular and maximise the market share. The manufacturer seeks to sell to the masses. Many firms use this strategy while launching fast moving consumer products. The policy results in high sales volume during the initial stages of a product's life cycle. Some retailers use this strategy by operating on the principle of low markup and higher volume. Penetrating pricing is an aggressive pricing strategy and it may be used to restrict the entry of new firms in the industry. Penetrating pricing is desirable under the following conditions:

1. Demand for the product is highly elastic, i.e., the quantity sold is highly sensitive to price.
2. Substantial economies in unit cost can be achieved by operating at large volumes of production and sales.
3. There is strong potential competition in the market.
4. High income market is inadequate, i.e., very few consumers are willing to pay a high price.
5. The public is likely to accept the new product as a part of its daily life. 

'Nirma' detergent powder quickly penetrated the mass market in India, providing value for money and displacing the higher-priced 'Surf'.