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SmartPOS > Blogs > Business > How To Implement A Penetration Pricing Strategy In Your Retail Store

How To Implement A Penetration Pricing Strategy In Your Retail Store

Posted by: Amogh Balaji

There is fierce competition in the retail industry. Not only between stores but also between brands. Customer acquisition helps cut through the noise. It is the foremost priority for all types of brands. Gaining more customers and getting them to stay loyal to a brand translates to regular sales and more profits. It’s easier said than done. New entrants can find it extremely difficult to compete against large corporations and other brands.

Consumers develop an affinity toward specific brands and continue to purchase them at all costs. Diverting their attention to trying out new products can be tricky. The best way to persuade new customers to buy new arrivals in stores is by implementing a penetration pricing strategy. It minimizes the barriers that hinder the prospects of new product brands.

We will discuss the meaning of penetration pricing, its advantages, the best strategies, and how a POS system plays a vital role. Let us get started.

What does penetration pricing mean?

A pricing strategy that is most effective at enticing consumers to purchase products from emerging brands is penetration pricing. It refers to minimizing product costs and offering them to shoppers at a discount.

While this strategy is of great advantage for new entrants looking to establish a strong foothold in the market, it takes a toll on profits. The products you offer at lower prices are at your expense. That said, there is a bright side. Once you gain enough customers, you can normalize or increase product prices. That makes up for the initial losses you incur.

Why implement a penetration pricing strategy?

Penetration pricing provides numerous advantages to new players in the retail segment. Let’s take a look at what they are.

  • Customer base growth – When you offer new products at significant discounts, it encourages customers to shop for new brands and spread the word.
  • Surpass competition – Companies cannot reduce their product costs abruptly. By lowering the cost of your items, you gain a distinct unbeatable advantage in the market.
  • Gain spotlight – Customers are always on the lookout for valuable product deals. Dropping your product prices shifts the spotlight from other brands onto you immediately.

The best strategies

There are three penetration pricing strategies you can implement in your retail store. All of them have the potential to boost sales.

Discounted entry price

Discounting the introductory price of products is the most common and effective penetration pricing strategy. It helps you gain maximum exposure in little. Keep in mind that the discount eats into your profits. So after a short while, increase your product prices to improve profits while having a stable customer base.

Free trials

This strategy works best with subscription-based products as well as food/cosmetic samples. Giving consumers a free experience of your products encourages them to make purchases. Customers decide whether to commit to your product after sampling or after the trial period is over.

Buy one, get one free

Buy one, get one free refers to offering an item as a freebie with a relevant product. Mentioning the “free” item captures the attention of shoppers more than offering discounts. This strategy is also excellent at clearing out slow-moving stock.

How a POS system helps implement penetration pricing strategies

Managing the penetration pricing of various products in your store can be a tedious task. You require an effective system to update product prices across all your outlets, create promotions like BOGO, etc. The best tool for all of those purposes is a Point of Sale software application.

A POS solution provides easy-to-use modules for creating offer campaigns and shows you insightful reports on how quickly your inventory is turning over. Ultimately, you can manage all your prices from a single software application. It beats the hassles of using manual-intensive tools like spreadsheet software and paper-based management methods.

Conclusion

Implementing the right penetration pricing strategy gets rid of the barriers that slow down new product sales. It enables you to garner a good amount of customers before raising the prices again.

A retail POS solution helps oversee and execute penetration pricing strategies. If you’re looking to purchase one, get SmartPOS. It is packed with the latest features, is highly secure, and is cloud-enabled. Reach out to us to know more.

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