Penetration pricing

• Penetration pricing is a pricing strategy often adopted by businesses with a new product aiming to gain market share
• What is the primary objective of penetration pricing?

  Build customer loyalty
• Penetration pricing involves setting a high introductory price to attract customers

  False
• Penetration pricing contrasts with price skimming
• Penetration pricing is most effective when demand is price-sensitive
• What happened when IKEA first launched in China using penetration pricing?

  Prices were reduced significantly
• IKEA reduced its prices in China by as much as 70%
• Match the pricing strategy with its description:

  Penetration pricing ↔️ Low introductory price

  Price skimming ↔️ High initial price
• What is "hook and bait" penetration pricing?

  Low initial price, high replacement cost
• Hook and bait pricing is commonly used by companies selling inkjet printers
• Hook and bait pricing results in a higher total cost of ownership for customers
• Why do razor blade businesses use hook and bait pricing?

  To build customer loyalty
• Penetration pricing requires demand to be highly sensitive to price
• Steps in implementing hook and bait penetration pricing

  1️⃣ Sell the initial product at a low price

  2️⃣ Build customer loyalty

  3️⃣ Sell replacement items at a premium
• Competitors often retaliate when penetration pricing is used
• What is a potential drawback of penetration pricing over time?

  Expectation of low prices
• Penetration pricing may attract customers looking for a bargain
• Retaliation from competitors is inevitable when using penetration pricing