Enterprise Marketing — Entrepreneurship STD 12 Commerce — Question

Penetrating pricing is the method of pricing in which the entrepreneur introduces its product in the market with low price compared to competitors. The low price increases the sale of the product tremendously. Normally for keeping low price, the profit margin is normally kept very low. The product thus captures the major part of the market e.g. Hero Honda, CD Dawn motorbike was introduced with the same pricing method. The CD Dawn penetrated into the market and captured major part of the market. Recently Bajaj CT- 100 also followed the tactics. Wheel active detergent powder kept the price of Rs. 20 per half kilogram. This also captured the market quickly.Advantages: Following are the advantages of penetrating pricing method:

1. Quick rise in sales: Penetrating pricing results in the increase in sales with a very high speed.
2. High turnover: The turnover of the enterprise is raised in very short duration. This strengthens the position of enterprise in the market.
3. Return on investments: This method brings decent return on investments. The minimum profit margin is also assured with the sale of each unit.
4. Best method for price elastic goods: When a small range in price brings more change in demand, such products have penetrating pricing as the best method.

Disadvantages: Following are the disadvantages of penetrating pricing method:

1. This method is applicable only to the products and services, which have high price elasticity. Thus, it is not applicable to all the products.
2. Profit margin is low in the price fixed by such method. This profit may not be sufficiently compared to the cost of production and promotion.
3. Turnover of the enterprise increases tremendously. Such enterprises have to prepare themselves for a situation of more financial requirements.