Author: Jim Riley Last updated: Sunday 23 September, 2012
Expansionistic pricing is a more exaggerated form of penetration
pricing and involves setting very low prices aimed at establishing mass markets,
possibly at the expense of other suppliers.
Under this strategy, the product enjoys a high price elasticity
of demand so that the adoption of a low price leads to significant increases
in sales volumes.
Expansionistic pricing strategies may be used by companies
attempting to enter new or international markets for their products. Lower-cost
version of a product may be offered at a very low price to gain recognition
and acceptance by consumers. Once acceptance has been achieved more expensive
versions or models of the offering can be made available at higher prices.
The extreme case of expansionistic pricing, where offerings
are made available to the (overseas) market at a price that is actually less
than the cost of production is known as dumping. This practice is closely
scrutinised by governments since it can force domestic producers out of business
and many countries have enacted anti-dumping legislation.
Markets that might benefit from expansionistic pricing strategies
include those of magazine and newspaper publishers. Where low prices (annual
subscription rates) attract a large number of subscribers, publishers can
benefit from the higher rates that they are able to charge advertisers for
their advertising ‘space’. Book and CD ‘clubs’ also
use expansionistic to attract new members.