4/15/2024 0 Comments Price penetration strategySet an initial price that's lower than competitors - Once you understand the prices your competitors are offering and the product features that are most valuable to your customers, set an initial price. New parents are a passionate bunch, so visit forums on social platforms like Facebook and Reddit to see what they're buying and talking about. Then drill down to brands, boutiques, and specialty websites to see what big brands and small online sellers are charging for newborn clothing. Use tools like Google Shopping or online marketplaces like Amazon to get a high-level view of prices for different products. Research and analyze the market - It's important to understand what other eCommerce small business owners are charging for organic cotton onesies. The more you clarify the pain points and motivations of your target audience, the better you can tailor your penetration pricing strategy to them. It could also include interests, priorities (e.g., organic, fair trade, etc.) and favorite brands. This should list demographics like age, sex, and income. You could additionally lean heavily into gifting which would appeal to grandparents, friends, and anyone looking for a unique baby gift.Ĭreate a buyer persona - Once you identify your target audience, you can begin to build a buyer persona (or multiple personas) to inform your overall launch strategy, including your penetration pricing approach. It could also be first-time parents who've never shopped with you before. Your target market could be your existing customers who may be planning for or expecting a baby. The first step in creating your penetration pricing strategy is to identify exactly who you plan to sell the onesies to. Identify and define your target audience - Here's the scenario: you've established yourself as a reliable online children's clothing boutique and want to expand your market by introducing a line of eco-friendly onesies for newborns (like babywear brand Bonsie). Additionally, staying too low for too long might make it difficult to raise prices down the road when profit margins start to thin. If you do, your brand could become associated with poor quality and low price (think Dollar Tree). Staying too low for too long – You can't stay in the penetration pricing zone forever. At one point, Amazon also sold a wool sneaker that was nearly identical to Allbirds, but sold at less than half the cost (that product appears to be gone now). For example, Amazon offers a range of much cheaper modal-fabric underwear in styles similar to MeUndies. For example, Allbirds launched with one type of wool sneaker for $95, but subsequently introduced a high-top version of the sneaker that sells for $115.Ĭompetition from other brands – When a product becomes popular, competitor copycats begin to flood the market. One way to mitigate this is to introduce a new, slightly more expensive product. It took MeUndies five years to make a profit, but waiting it out paid off (and then some) for the company, which recently received $40 million from an investment group.ĭifficulty raising prices – Customers who are initially attracted by your low price may not stick around once you begin to raise prices. You must be willing to take a hit now to gain traction later. Low profit margins – The biggest drawback to penetration pricing is that it can lead to thin profit margins, especially in the early stages. The loyalty should follow shortly afterwards, once you’ve established yourself as a company that consistently produces a high-quality product and exceptional customer service. This was the case for Netflix, IKEA, and MeUndies-alongside many other D2C brands like Allbirds and Who Gives a Crap (a toilet paper brand). The promise of being able to try new high-quality products-like MeUndies’s briefs-combined with a limited-time offer (“try now before the price increases”) can often motivate shoppers to give you a try.Īccelerate brand awareness and loyalty – If you’re a small, new, or relatively unknown brand, then penetration pricing can help to build awareness. It’s about getting customers interested in your product by offering a good deal. The monthly price was low enough to convince people to give Netflix’s unique business model a chance.Īttract price-sensitive customers – Penetration pricing isn't necessarily about having the lowest possible price. Their penetration pricing approach helped them lure customers away from the dominant player in the video rental space. Build market-share – Back in 2000, Netflix was at a huge disadvantage compared to Blockbuster.
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