Price-Penetration Strategy
TermiKnowledge - Supply Chain, Procurement and Inventory Terminologies
A price-penalty strategy primarily focuses on maximizing the revenue and bottom-line of any manufacturing organization. Price-Penetration is one of the major drivers of supply chain management. It aims to maximize the utilization of existing resources while minimizing the cost of capital expenditures and incurring new financial liabilities. Price-Penetration strategy primarily focuses on initializing a minimum viable price for a product or a service before entering into a contractual arrangement with a client; so as to achieve quick market entry, which is, to effectively capture a larger number of potential customers faster and thus attain a larger market share in a shorter timeframe.
Price-Penetration strategy, together with inventory-based costing, helps you to determine your manufacturing costs. It enables you to determine the most economic production mix by optimizing your current operation costs. Price-Penetration is an important and often ignored cost reduction strategy, which is very useful for analyzing the productivity of a manufacturing operation. Many manufacturers think that increasing the productivity is not important until they start selling to customers, but this is an incorrect assumption. Increasing your production efficiency by eliminating waste in the first production step alone will give a significant competitive advantage in the market.
The objective of every business, whether manufacturing goods or providing services, is to reduce the cost of production or provision of goods and/or services. The ultimate aim of every enterprise is to lower the cost of doing business. Every enterprise has its own framework of activities and targets to accomplish the objectives. Therefore, it is very important to understand the nature and scope of operations, risks, opportunities and threats, and take necessary actions to mitigate risks and increase the profitability of the company.
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