Commercial Applications
What is penetrating pricing? Identify two conditions under which it is desirable.
Answer
Penetrating Pricing — This pricing strategy involves setting a low price in the initial stage so as to make the brand quickly popular and to maximise the market share. The manufacturer seeks to sell to the masses. Many firms use this strategy while launching fast moving consumer products. The policy results in high sales volume during the initial stages of a product's life cycle. For example, 'Nirma' detergent powder quickly penetrated the mass market by providing value for money and displaced the higher-priced 'Surf' in India.
Two conditions under which penetrating pricing is desirable:
- Highly elastic demand — When the demand for the product is highly elastic, i.e., the quantity sold is highly sensitive to price. By reducing price, demand can be increased to a large extent.
- Strong potential competition — When there is strong potential competition in the market, a low initial price helps restrict the entry of new firms and capture a larger market share before competitors enter.
Related Questions
What is Cost Plus pricing policy? State two advantages and two disadvantages of it.
What is direct selling? Explain any two methods of direct selling.
Evergreen Cosmetics is planning to launch a new range of 'anti-wrinkle creams' in the Indian market. They conducted a market survey and found potential competition from Remain Young. Since they are targeting the higher strata of society, the cream is being priced much higher than their competitors. They plan to use the television as a media to advertise this anti-wrinkle cream as opposed to print media which is largely used by them for their other products. Officials at Evergreen Cosmetics feel that with the correct style of promotion they could easily be successful in the market.
(a) Identify and explain the pricing strategy that is being used by Evergreen Cosmetics.
(b) Describe any two qualities that a salesman selling this product should possess.
(c) Explain any two tools of sales promotion that can be used here.
What happens to a product in the decline stage of its life cycle?