Pricing below the market is a technique used by giant mass market firms to take market share. Also known as “penetration” pricing, this is a strategy where a provider sells products below market price to break into a market or to take market share. When enough competitors are scared out of the market, the giant firm will raise prices and recoup lost profits.
This is what the Japanese semiconductor makers did in the 1980’s; buoyed by a lower cost of capital and a government-sponsored long-term objective, taking market share from the U.S. semiconductor firms was the worth the short-term losses. You may recall that the U.S. manufacturers called foul on this practice and referred to it as “dumping”.
Nonetheless, Japan emerged as a major player in the semiconductor memory chip business and pushed many U.S. suppliers out of the business. The risk paid off for the Japanese semiconductor industry.
This is a very interesting tactic, but hardly a tool for niche marketers like you and me. My advice is to price on value and keep the focus on customer needs.
John Bradley Jackson
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