Penetration pricing is a pricing strategy that a Wholesale Business implements while introducing its products or services in the market. At this stage, the purpose is to attract customers to a new product and entice them to buy this product. The prices are kept relatively low just to achieve a larger market share. Most of the times, this pricing strategy is adopted when a company enters a new market or wants to get a good market share. Penetration pricing strategy hits price sensitive customers and they switch to new products due to its low price. That way, that company ends up making more sales and eventually getting a good market share rather than just making short-term profits.
Wholesale traders must be very cautious before implementing this strategy as sometimes, it can create unnecessary problems. Let’s review different advantages associated with penetration pricing strategy.
Advantages of Penetration Pricing
Pricing strategy works. Therefore, it is considered one of the best tactics to perplex your competitor, giving them no time to recover from your attack. When they do not have anything to fight back, they leave the battlefield for you to win more customers by selling more Wholesale Products.
1. Penetration pricing strategy is the most appropriate marketing tool that is used to create a loyal customer base for your wholesale products. The sole purpose is to spread your product in the market and showcase your presence.
2. Fast diffusion and adoption is the ultimate reason to adopt this strategy. Low price attracts bargain hunters by stirring interest amongst them and they snap the deal. Price can only make people buy a product, not like it. As a seller, it is your job to make sure you’re offering the best possible quality justified within the set price bracket that you’re offering to your customers so that they approve of your product. Upon approval, customers will decide whether they’d buy it again or drop the idea. Once the customer places repeat order, the wholesaler can gradually increase the cost and retrieve the original cost and profit.
3. Penetration pricing strategy can be implemented in a sector, overflowing with options for customers. Low pricing helps you win more customers and keep your rivals out of the market, if they’re planning to launch a new product as it discourages the entry of new competitors in the same market segment. It gives an advantageous position to your product by establishing a new market for you. You can implement this strategy in automobiles, computer items, food items, tech supplies, accessories, cosmetics and consumable items.
4. If the product receives a good response from customers, it helps companies in achieving goodwill along with repeat sales. If the product is of good quality, it needs less marketing effort as it helps in creating more customers through word of mouth.
5. This strategy may lead to more sales, larger volumes and increased market share and resultantly lower cost per unit. The lower production cost will justify the use of penetration pricing strategy that is to gain market share at relatively lesser cost. It also helps in increasing the efficiency for product performance because of the low cost pressure.
Though several risks are also involved while implementing this strategy, however, several wholesale entrepreneurs have encountered positive results that other companies prefer following these examples laid by brands and other wholesale companies.

Author's Bio: 

William King is the director of Wholesale Products, UK Wholesale Business, UK Dropshippers and Wholesale Supplies. He has 18 years of experience in the marketing and trading industries and has been helping retailers and startups with their product sourcing, promotion, marketing and supply chain requirements.