For example, the price of ink cartridges for a printer may be higher than what the market would typically bear, because the company that makes the printer is also selling the ink cartridges. When prices increase, those customers may become dissatisfied and stop purchasing the product or service, or find another lower price competitor. Captive product pricing refers to pricing strategy where the price of one product is tied to the price of another product. 40) Price fixing involves companies collaborating with each other (1 point). 39) Markdowns is not a pricing tactic (1 point) T or F. If a company uses penetration pricing, customers may begin to expect permanently low prices for that product or service. Market penetration pricing refers to setting an initial price as the introductory price. Penetration pricing also allows companies to gain a large majority of market share before their competitors can react. Therefore, penetration pricing is not recommended as a long-term pricing strategy for any business.

Instead of setting a high initial price to skim off each segment, market-penetration pricing refers to setting a low price for a new product to penetrate the market quickly and deeply.

The opposite new product pricing strategy of price skimming is market-penetration pricing. If the initial price is set low, at 2, for instance, the quantity demanded. Market-Penetration Pricing New Product Pricing. Other technology companies like Samsung and Google have also used this strategy. The iPod classic was priced at 399 in 2002 and was decreased to 299 about one year later. It’s a strategy they’ve used with everything from iPhones to iPods. Returning to our economic model, below, you can see that penetration pricing focuses at the bottom of the demand curve. Technology: Apple is perhaps one of the notorious examples of price skimming. However, this is not a guarantee, and sometimes customers could remain a financial drain. One of the major aims of penetration pricing is to encourage people who already buy a similar product or service to try your alternative instead. Penetration pricing is most commonly associated with marketing objectives of enlarging market share and exploiting economies of scale or experience. The hope is that these customers will grow loyal to the product or brand, and buy-in to any upsells or cross-selling. The first advantage of penetration pricing is attracting a quick influx of new customers who see the value of the product, and feel they’re getting a good deal. Penetration pricing has a few advantages, but there are some important potential pitfalls to consider as well. Advantages and pitfalls of a penetration pricing strategy

Penetration pricing refers to