馃攳
The Penetration Pricing Strategy - YouTube
Channel: Alanis Business Academy
[0]
in this video we're going to talk about
[8]
penetration pricing will start with a
[10]
quick definition explaining what
[12]
penetration pricing is will walk through
[14]
how it's incorporated in the market and
[17]
then we'll provide some examples to give
[19]
you a little bit of a better
[21]
understanding of how penetration pricing
[23]
is incorporated in the market today so
[26]
for starters let's talk about what
[27]
penetration pricing is penetration
[30]
pricing is a pricing strategy that
[32]
involves setting a relatively low price
[35]
initially for the purpose of increasing
[37]
market share and then what happens is we
[41]
gradually increase prices over a period
[43]
of time so that we are profitable so
[47]
this can be used in a number of
[48]
different circumstances but the
[50]
commonality is that we're trying to gain
[53]
market share and we're using price as
[56]
the incentive for people to adopt and
[58]
purchase our product or service so let's
[61]
see how this works in comparison to the
[63]
prior video where we talked about price
[65]
skimming so penetration pricing again is
[69]
a little bit of a different strategy
[70]
so instead of starting with a high price
[72]
we're actually going to start with a low
[74]
price and so we're going to go ahead and
[76]
put price on the y-axis here and then
[78]
the quantity of goods demanded is going
[81]
to go over here on the x-axis and so
[85]
again very similar to pass we know that
[86]
as the price of a product decreases the
[89]
quantity demanded begins to increase
[90]
that's kind of the basic idea the law of
[93]
supply and demand so we're penetration
[96]
pricing is different is that instead of
[99]
pricing our product hi we're actually
[100]
going to start relatively low and then
[103]
we're going to gradually increase prices
[105]
Now price skimming which we talked about
[107]
in our prior video involves establishing
[110]
a higher price initially and then
[113]
gradually lowering it over a period of
[115]
time in order to skim different segments
[118]
of the market so that we can kind of
[120]
maintain profitability over a period of
[122]
time so that is generally how the idea
[126]
of it works is we're trying to expand
[128]
our market share and then we're
[130]
gradually going to increase prices over
[132]
a period of time
[133]
so let me give you a couple of examples
[135]
of companies that have utilized this to
[138]
some degree as you kind of see how this
[140]
plays out practically one of the more
[142]
common examples is really any kind of
[146]
internet phone provider television
[148]
provider everything from comcast xfinity
[150]
to AT&T u-verse utilizes some form of
[154]
penetration pricing and the reason that
[156]
that exists is generally because they
[159]
want to expand their user base by
[161]
offering that low introductory offer and
[164]
they generally have some kind of
[165]
contract that you sign in order to lock
[168]
in that rate for a period of time and
[170]
then once that kind of grace period ends
[173]
the contract for the offered price goes
[176]
up and and sometimes rather
[177]
significantly and that would be an
[179]
example of penetration pricing is trying
[182]
to offer a really low price to attract
[184]
consumers and then eventually increasing
[187]
prices and what you're hoping is that
[190]
the customers eventually just won't
[191]
switch and so when your comcast bill or
[194]
your TV bill goes up that the provider
[197]
is hoping that your that you don't exert
[200]
the effort to shop around to switch
[202]
services and that sort of thing and the
[204]
reason for that is usually the
[206]
introductory prices that are offered via
[208]
penetration pricing don't allow for a
[211]
great deal of profitability the margins
[213]
are generally very slim and so the
[215]
business needs to increase prices over a
[218]
period of time to be able to offer the
[221]
service profitably the other company
[223]
that I think of that utilizes this to an
[226]
extent or at least had in the past
[227]
southwest airlines and when they first
[230]
entering the market they offered a very
[232]
very low price point you purchase the
[235]
ticket that ticket did not guarantee you
[237]
an exact seat on the plane and just
[238]
guaranteed you a seat on the plane so it
[241]
was kind of a first-come first-serve it
[243]
was really a no-frills kind of airliner
[245]
but they got buy in the market because
[247]
no other airliner wanted to compete with
[249]
them nobody was willing to lower prices
[251]
that much you simply couldn't make any
[253]
money and so they were able to carve out
[256]
a little bit of a niche simply because
[258]
nobody wanted to lower their prices to
[261]
compete with them so they were allowed
[262]
to operate kind of unfettered for a
[264]
period of time
[266]
now we know that they still offer some
[268]
low prices but generally speaking they
[270]
have a little bit of a higher price
[271]
point compared to previously simply to
[275]
have some level of profitability
[277]
so again just summarizes we finish up
[280]
this video penetration pricing is all
[282]
about having a low price point so that
[285]
we can expand market share and then
[287]
gradually begin to increase prices over
[290]
a period of time
Most Recent Videos:
You can go back to the homepage right here: Homepage