Offer your product at the minimum price. Because small businesses lack the sales volume of larger companies, they may find it challenging to cut production costs. Penetration pricing can also be risky because it can result in an initial loss of income for the business.
The second advantage it gives you is an anchoring price. Conclusion Every marketer will consider raising prices to increase revenues. After all the discounts have been applied, the net price is the pocket price—something far removed from the list price and even removed from the invoice price.
Thaler asserts that context was the simple explanation here: the perceived prestige of the upscale hotel allowed it to get away with charging higher prices.
People will see the base price, and use that as their anchor when considering the premium options. You might expect, then, that having identical price points for multiple products would be ideal, right?
If, like in the example from above, you sell clothes and there has been an increase in the cost of fabric, then you can simply tell your customers that that is the reason for your price increase. The Power of Context Is there ever a time when one Budweiser is worth more than another? By increasing the perceived added value of your product you can sell something with the same cost as your other products at a higher price.