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Penetration pricing

Selling a new product at a low price in order to gain a foothold in the market. The focus, at least in the short-term, is on sales volumes and market share, as opposed to sales revenue and profit. The aim is to encourage people to try the product and secure brand loyalty. The hope is either to increase price once brand loyalty has been established, or that costs will fall due to economies of scale. Success is dependent upon demand for the product being price elastic. Penetration pricing is commonly used by firms operating in mass markets, eg biscuits, confectionery, washing powder and crisps, ie where there is high potential demand and the basic product is the same and, thus, demand is likely to be price elastic

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