What is the function of a penatration pricing strategy in a competitive market?

A penetration pricing strategy is primarily employed to deter competition from entering the market. In a competitive landscape, businesses may set their prices significantly lower than competitors to attract customers and gain market share quickly. This strategy can create barriers for new entrants, as they may be discouraged by the reduced profit margins and the challenging market conditions created by low prices.

By offering prices that are attractive to consumers, a company can rapidly build a customer base and establish itself as a dominant player in the market. As the company gains traction and increases its market share, it can later adjust its pricing strategy, potentially increasing prices once competition is less of a threat. This initial lower pricing acts as both an incentive for consumers to choose that product over others and as a protective measure against potential competitors who might find it unappealing to enter a market with such low pricing.

While creating loyalty among customers, encouraging large purchases, and increasing visibility are important aspects of marketing strategy, they do not specifically encapsulate the primary function of penetration pricing in competitive circumstances. Instead, the focus on deterring competition highlights the strategic intent behind such pricing decisions in a market where rivals are vying for consumer attention.