#Example of penetration pricing movie#

That put rentals at or below $1 per DVD for regular movie-watchers, where Blockbuster charged about $4.99 for a single three-day rental. In 2000, Netflix users could rent four movies at a time with no return-by dates for the $15.95 subscription plan. From the outset, Netflix emphasized ease and affordability to attract Blockbuster customers.

#Example of penetration pricing movie#

If customers could wait a day or two for their DVDs to arrive, they could access a better movie library without any late fees. Although Blockbuster dominated the home entertainment market, it was also associated with late fees and limited selections. In the late 1990s and 2000s, DVD rentals were becoming mainstream. Netflix is a powerful example of using market penetration pricing to edge out a major competitor. Netflix: An example of penetration pricing. When choosing your pricing strategy, be sure to take any legal considerations into account. Predatory pricing removes the possibility of healthy competition and doesn’t benefit consumers. Then, the firm raises prices above market levels to recoup losses and maintain their position. Unchecked or unregulated, the firm attains a monopoly. A firm practicing predatory pricing lowers costs dramatically to drive competitors out of the market.

Predatory pricing: Predatory pricing is illegal in the U.S.

In theory, customers buy these “loss leaders” and then spend the savings on the company’s other, more profitably priced goods. Companies sell a product or service at a loss - or narrow margin - to attract more customers.

Loss leader pricing: Loss leader pricing is a slightly different marketing strategy and is illegal in half of U.S.The business plans to increase prices in the future, often setting a time limit on the introductory rate. Penetration pricing: With this pricing strategy, a business sets a low price on a new product or service in an attempt to gain significant market share quickly.There are a few pricing strategies that sound similar to penetration pricing, but have very important differences. A low price is the foot in the door for many new businesses. High prices could hurt sales and limit growth during the crucial launch period. Businesses selling price-elastic products - meaning their customers' buying habits shift based on price - also use the penetration strategy. The hope is that the sales volume will make up for the below-average cost. Penetration pricing is generally used when demand for a new product or service is projected to be high. Competitors have less time to respond before the company amasses market share and becomes the new standard of choice. The company sets a price that’s a bargain for its unique value, while still being cheaper than the familiar options. Price is removed as a barrier to get people to try the new product or service. If it’s an innovative product, this theory works the same way. After a period of growth, the business typically raises prices to increase profits and reflect the product’s rising value.

Competitors' customers may switch over to the cheaper offer, and new customers buy in too.

The initial price undercuts competitors, forcing them to match the offer or quickly apply other strategies. Penetration pricing is when businesses introduce a low price for their new product or service. The goal is to generate demand, rapidly build a customer base, and maximize brand loyalty in a short time. How does a penetration pricing strategy work?Ī penetration pricing strategy prioritizes market share over profits for a given time period. We’ll explain how it’s different from similar pricing tactics, provide examples, and cover the advantages and disadvantages of penetration pricing. Learn the ins and outs of using a penetration pricing strategy. Many high-profile startups have used this strategy to disrupt industries and become today’s market leaders. A penetration pricing strategy is built on this concept.īy entering the market with a low price, businesses aim to attract customers quickly - then gradually raise their price. For many consumers, nothing makes their buying decision easier than price. New businesses rely on clear and powerful differentiators to stand out from the competition.