Preventive pricing strategy
This strategy involves the use of low prices, in order to prevent potential competitors from entering the market.. The result of such actions is that the market is dominated by the prices unattractive to potential competitors.
This strategy is particularly well adapted to the situation in which the company has patents that protect the product or has an advantage over other companies resulting from the diversity of products, and when entry is relatively easy.
Delaying the market entry of competitors gives companies a chance to increase its market share and reduce unit costs through economies of scale or experience, as well as allow to gain the recognition as the pioneering brand on the market.
Effects of application
One example can be RCA Corporation which used this strategy with the launch of color TV. Low price had to provide them time needed for improving manufacturing technology of color cathode-ray tubes before the advent of large-scale competitors, cost reduction and gaining a strong position on the market of color TVs.
- Jobber, D., & Shipley, D. (2012). Marketing-orientated pricing: Understanding and applying factors that discriminate between successful high and low price strategies. European Journal of Marketing, 46(11/12), 1647-1670.