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What are the features of penetration pricing strategy?

(i) Penetration Pricing: It is a policy of using a low price as the principal instrument for penetrating mass markets early.
(ii) This method is used for pricing a new product and to popularize it initially.
(iii) Profits may not be earned in the initial stages. However, prices may be increased as and when the product is established and its demand picks up.
(iv) The low price policy is introduced for the sake of long term survival and profitability and hence it has to receive careful consideration before implementation. It needs an analysis of the scope for market expansion and hence considerable amount of research and forecasting are necessary before determining the price.
(v) The circumstances in which penetrating pricing can be adopted are:

Elastic demand: The demand of the product is high when price is low. Hence, lower prices mean large volumes and hence more profits. 

Mass Production: When there are substantial savings in large-scale production, increase in demand is sustained by the adoption of low pricing policy.

Frighten off competition: The prices fixed at a low-level acts as an entry barrier to the prospective competitors. The use of this policy by existing concerns will discourage the new concerns to enter the market. This pricing policy is also known as “stay-out-pricing”.
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