By April Maguire. When pricing their wares, most businesses have an inclination to charge the maximum amount possible. Market penetration pricing refers to a strategy in which the price of a product is set low following its introduction in the market. Once the product has found a market segment, the business raises prices to a more reasonable and expected level. Penetration pricing works on the belief that a product has enough buyers to make up for the lower price point.
Discount penetration pricing is a strategy designed to keep prices low to shut out potential competition. When used in an existing market, it creates a price war. The strategy can be very effective for companies that do their market research carefully and know that they have the resources to make it work. However, it can be difficult to later raise prices and could result in a higher market share with a lower profit potential. Market penetration pricing is a pricing strategy that sets a low initial price for a product.
Market penetration is the percentage of a target market that consumes a product or service. Market penetration can also be a measure of one company's sales as a percentage of all sales for a product. Companies produce goods and services with a specific population or market in mind.