Pricing - expansionistic pricing

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.

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