It establishes cost-control and cost-reduction pressures from the start, leading to greater efficiency.It can create goodwill among the Innovators and Early Adopters, which can generate more demand via word of mouth.The strategy can achieve high market penetration rates quickly, taking competitors by surprise and not giving them time to react. It can result in fast diffusion and adoption across the product life cycle.The advantages of penetration pricing to the firm are the following: Like skim pricing, penetration pricing shows an awareness of the dynamics in the product life cycle. Why Might Penetration Pricing Make Sense? Penetration pricing offers a lower price in order to draw in a higher demand from consumers. If the initial price is set low, at $2, for instance, the quantity demanded will be high: 400 units. Returning to our economic model, below, you can see that penetration pricing focuses at the bottom of the demand curve. Penetration pricing is most commonly associated with marketing objectives of enlarging market share and exploiting economies of scale or experience. The strategy works on the assumption that customers will switch to the new product because of the lower price. Penetration pricing is a pricing strategy in which the price of a product is initially set low to rapidly reach a wide fraction of the market and initiate word of mouth.

Reading: Penetration Pricing What Is Penetration Pricing?

Disadvantage of penetration pricing