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Here the strategy involves starting-out with almost the entire emphasis on pricing on the basis of what the market will bear and moving from this point toward cost pricing at a measured pace.The pace must be slow enough to pick-up profits but fast enough to discourage competitors from entering the market. This involves the strategy of getting the highest possible price out of a product’s distinctiveness in the short-run without worrying about the long-run company position in the foreign market. A high price is set until the small market at that price is exhausted.The price may then be lowered to tap a second successive market or income level. Penetration pricing involves the assumption that if the price is set to bring in a mass market, the effect of this volume will be to lower costs sufficiently to make the price yield a profit.In an industry of rapidly decreasing costs, penetration pricing can accelerate the process.


The strategy also involves the assumption that demand is highly elastic or that foreign purchasers buy primarily on a price basis.
This strategy may be more appropriate than skimming for multinational companies facing the demand conditions of the less developed countries.An extreme form of penetration pricing is expansionistic pricing.
This is the same as penetration pricing except that it goes much lower in order to get a larger percentage of the customers who are potential buyers at very low prices.
If necessary to discourage potential competition prices may even be set temporarily below total cost.


It may be adopted by large, low-cost producers as a conscious means of driving weaker, marginal producers out of the industry. Although they may serve to capture initially a foreign market and may keep-out, or drive-out, competitors, they should be used only with extreme caution.There is the ever present danger that Foreign Governments will impose arbitrary restrictions on the import and sales of the product, consequently closing the market completely to the producer.



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