(i) Penetration Pricing: Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term. The price will be raised later once this market share is gained.
(ii) The advantages of penetration pricing to the firm are:
(a) It can result in fast diffusion and adoption. This can achieve high market rates quickly. This can take the competitors by surprise, not giving them time to react.
(b) It can create goodwill among the early adopters segment. This can create more trade by word of mouth.
(c) It creates cost control and cost reduction pressures from the start, leading to greater efficiency.
(d) It discourages the entry of competitors. Low prices act as a barrier to entry
(e) It can create high stock turnover throughout the distribution channel
(f) This can create critically important enthusiasm and support in the channel.
Disadvantages or penetrating price method :
(a) The main disadvantage with penetration pricing is that it establishes long–term price expectations for the product and image preconceptions for the brand and company. This makes it difficult to eventually raise prices.
(b) Another potential disadvantage is that the low profit margins may not be sustainable long enough for the strategy to be effective.
(iii) Direct level
