Marketing Strategy, Penetration Strategy

Only available on StudyMode
  • Download(s) : 692
  • Published : February 9, 2012
Open Document
Text Preview
Introduction Pricing is an important strategic issue because it is related to product positioning. There are many ways to price a product, eg. price skimming, penetration pricing, etc. Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, and then lowers the price over time where a new, innovative, or much-improved product is launched onto a market. The objective with skimming is to “skim” off customers who are willing to pay more to have the product sooner; prices are lowered later when demand from the “early adopters” falls. The success of a price-skimming strategy is largely dependent on the inelasticity of demand for the product either by the market as a whole, or by certain market segments. The main objective of employing this strategy is to benefit from high short-term profits and from effective market segmentation. Penetration pricing involves the setting of lower, rather than higher prices in order to achieve a large, if not dominant market share. This strategy is most often used businesses wishing to enter a new market or build on a relatively small market share. This will only be possible where demand for the product is believed to be highly elastic, penetration pricing strategy may also promote complimentary and captive products. The main product may be priced with a low mark-up to attract sales (it may even be a lossleader). Customers are then sold accessories (which often only fit the manufacturer’s main product) which are sold at higher mark-ups. A successful penetration pricing strategy may lead to large sales volumes/market shares and therefore lower costs per unit. The effects of economies of both scale and experience lead to lower production costs, which justify the use of penetration pricing strategies to gain market share. Penetration strategies are often used by businesses that need to use up spare resources (e.g. factory capacity). Burger King Burger King (BK), the second largest fast food hamburger restaurant chain in the world, with over 11,000 company-operated and franchised restaurants in over 70 different countries. The company uses market penetration strategy which amounts to increasing sales of existing products while at the same time trying to maintain current margins of profitability. According to the straits times, geographical placing of the restaurants plays a major factor for market demand. It also mentioned that “even the best products have only partial market penetration, and that is why, in the real world, BK does not have four outlets sitting squat opposite each other.” (Ho, July 16, 2002) From my view, before a penetration strategy is in place, supplier must be certain that it has the production and distribution capabilities to meet the anticipated increase in demand. Demand is price-sensitive and either new buyer will be attracted, or existing buyers will buy more of the product as a result of a low price. The is strategy is very successful for BK as it is most appropriate where the target audience are mass market, the product will face stiff competition soon after introduction, and also the product demand is

highly price elastic. BK has also used a promotional pricing strategy to create more awareness its brand, products and services. Coach “1941 in Manhattan, New York, six leather artisans rely on exquisite craftsmanship, located in a loft where the family-style workshop to produce high-quality leather, COACH brand was born. COACH is also the United States by the market the longest and most successful leather brands.” (Allenlin, Oct 20, 2009 ) By the 1950s, COACH has launched dozens of classic style, the proportion of moderate Coach Handbag design. The quality and durability of these handbags, exquisite craftsmanship, interest female consumers and COACH was able to build a good reputation among them. However, COACH brand design style has been quite satisfactory, although the quality good, but as Gucci, Prada and...
tracking img