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Simple English definitions for legal terms
penetration pricing
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A quick definition of penetration pricing:
Penetration pricing is when a company sells a new product at a lower price than what they think people will eventually pay for it. This is done to get into the market quickly, make it harder for competitors to enter, and make back the money they spent on creating the product.
A more thorough explanation:
Penetration pricing is a strategy used by companies to introduce a new product into the market. It involves setting the price of the product lower than the expected market price to attract customers and gain market share. The goal is to discourage competition and recover the initial investment.
Example 1: A new smartphone is introduced into the market at a price lower than its competitors. The company hopes to attract customers who are looking for a good deal and gain market share. As the product gains popularity, the company may gradually increase the price to match the market price.
Example 2: A new restaurant opens in a busy area and offers a limited-time discount on their menu items. The goal is to attract customers and encourage them to try the food. Once the restaurant gains a loyal customer base, they may increase the prices to match the competition.
These examples illustrate how companies use penetration pricing to gain a foothold in the market and attract customers. By offering a lower price, they can encourage customers to try their product and gain market share. Once they have established themselves, they can gradually increase the price to match the competition and recover their initial investment.