penetration pricing advantages and disadvantages

Penetration pricing advantages and disadvantages how to#

They sell more products to increase the market share of the firm. Scale Your Presence in the MarketĬompanies could scale their presence in the market in various ways. The company could increase the cost over time and improve its profitability. It would instantly help the company increase the market share and gradually earn the reputation of economical product manufacturer. The price adjustment of the existing product means that you offer the product at a lower price than competitors. Both of the firms developed a strategic alliance to share space and reduce the cost.Īlso Read: After-Sales Service – Definition, Types & Examples Price Adjustment of the Existing Products A joint venture is one of the forms of strategic alliances, and the purpose is to share the resources towards mutual benefits.īarnes&Noble is a books and stocks company, and Starbucks is a coffee service company. The strategic alliance is a useful option, but it’s challenging to develop an alliance with the companies doing business in the same market. The most obvious example of buying out small competitors is Facebook acquiring Instagram and WhatsApp and integrating with the parent brand. The buying out would help the company to expand its product portfolio and decrease the competition. Buy-Out Small Competitors in the MarketĪs the name implies that it means you utilize your capital resources and purchase the small startup competitors. The company spent two years gathering information on how they could better satisfy customers’ needs before making any decision. The company wanted to double its income and increase the market share in a few years.įMSI started surveying its target customers’ market to better understand their needs and wants.

That’s how a business could keep its customers for a long time and make them buy your product.įMSI (Financial Management Solution, Inc) is a US company that offers financial information and performance services to individuals and businesses. It doesn’t require any significant improvement it’s admirable, though. Here modifying your existing product means that you announce to improve the quality of the product by adopting better standards. Types Market Penetration Strategies With ExamplesĬompanies use the following methods and techniques to implement market penetration strategies Modify Existing Products If the market penetration rate of your product is lower, then you try to improve it.įor instance, the global market penetration rate of smartphone brands like Apple, Samsung, Huawei, Oppo, and Xiaomi is 19.2%, 18.4%, 10.2%, and 7%, respectively. You should compare your product’s market penetration rate with the average rate to see the difference. The average market penetration rate for ordinary consumer products falls within the range of 2% to 6%, and it ranks for business products from 10% to 40%. If you’re sure about your target market, put the values in the abovementioned formula, and you’ll get the market penetration. The suitable market penetration rate relies on your TAM (total addressable market) and product category.

Penetration pricing advantages and disadvantages how to#

Now the question is how to calculate market penetration you can calculate it by following the simple formula Īlso Read: Diversification Strategy – Definition, Types & Examples What is Good Market Penetration Rate? How to Calculate Market Penetration Rate? The measurement is about analyzing the sale of the new product relevant to the total customer market. You may perceive the market penetration in two ways either an activity or measurement. Companies use a penetration strategy for the expansion of their business and customer base.įor instance, a company follows the market penetration when it launches a new product in the current market to target the other segment of the existing market. Market penetration strategy uses for company growth by increasing sales of the current product to the current market with changing the product.

The other three strategies include market development, product development, and diversification. Market penetration strategy is one of the four growth strategies explained in the product/market expansion grid known as Ansoff Matrix.

Disadvantages of Market Penetration Strategy.Advantages of Market Penetration Strategy.Price Adjustment of the Existing Products.Buy-Out Small Competitors in the Market.Types Market Penetration Strategies With Examples.How to Calculate Market Penetration Rate?.