Selection of Penetration Pricing Strategy in a Business: Lidl

This report delves into the concept of penetration pricing, a strategic approach where businesses initially set low prices to attract a broader customer base and gain market share. The report uses Lidl, a German discount supermarket chain, as a case study to illustrate the practical application and significance of this strategy. It explores how penetration pricing facilitates customer attraction, fosters brand loyalty, and provides a competitive edge. The report outlines the aims, objectives, and research questions, followed by a description of the research methodology, including primary and secondary data collection methods, and the use of quantitative and qualitative research approaches. The analysis section examines the findings, limitations, and conclusions related to the effectiveness of penetration pricing strategies in the business context, specifically focusing on Lidl's operations. The report highlights the relationship between penetration pricing and customer attraction, emphasizing the importance of low prices in influencing consumer behavior and driving sales. The report concludes with a discussion of the strategy's benefits and potential drawbacks, offering valuable insights into its implementation and impact on business performance.

Assessment

Contents
Topic: Selection of penetration of pricing strategy in a business...........................................................3
INTRODUCTION.....................................................................................................................................3
Literature Review......................................................................................................................................3
Concept of penetration of pricing strategy in context of an organisation.................................................3
Significance of penetration pricing strategy for company........................................................................4
Relationship between penetration pricing strategy and customer attraction.............................................4
Aims and Objectives..................................................................................................................................5
Research Aim..........................................................................................................................................5
Research Objectives................................................................................................................................5
Research Questions.................................................................................................................................5
Research Methodology..............................................................................................................................5
Analysis......................................................................................................................................................9
Findings and Results...............................................................................................................................13
Limitations and Conclusion....................................................................................................................14
REFERENCES........................................................................................................................................15

Topic: Selection of penetration of pricing strategy in a business.
INTRODUCTION
The market today has become highly competitive and in order to sustain, organizations
have to adopt various strategies. Penetration pricing is a type of pricing strategy that many
organizations implement in order to maintain a competitive position against other brands. The
strategy involves an organization initially setting the price of a product low in order to reach a
wider section of the market (Abdulaal, Moghaddass and Asfour, 2017). There are many
advantages for organizations that implement the strategy in their system. Organization chosen for
this report is Lidl, which is a Germany based discount supermarket chain. The company is
headquartered in Germany and was founded by Josef Schwarz in the year 1930. This report
explains the concept of penetration of pricing strategies within an organization. Apart from this,
it also includes a description about the significance of the strategy for an organization along with
the relationship between penetration pricing strategy and customer attraction.
Literature Review
Concept of penetration of pricing strategy in context of an organisation
Penetration pricing strategy can be defined as a marketing strategy that is used by an
organization in order to attract customers to aa new product or service that is launched by it.
During the initial offering, the prices of the products are kept low. This is because it helps the
product or the service to penetrate within the market and attract a greater number of customers.
In a penetration pricing strategy, a company prioritizes market share over making profits in a
given period of time. The primary goal of this strategy is to generate demand among customers
and thus, build a customer base rapidly. Lidl is an organization that has business operations
across different geographic locations of the world (Bogomolova, Szabo and Kennedy, 2017).
The company implements this strategy when entering a new market in order to attract a greater
number of customers.
The rationale behind the company to implement this strategy is to capture the market
share in a new market and thus, create brand loyalty. There are certain situations wherein the
concept of penetration pricing strategy can be implemented (Tang and et.al., 2017). This includes
situation wherein the level of differentiation is less or demand is price elastic and when the

product is suitable for a mass market. Therefore, it can be said that penetration pricing can prove
to be a useful strategy, if it is implemented in an effective manner. It has proved to be beneficial
for the respective organization and helped it in developing a large customer base.
Significance of penetration pricing strategy for company
Penetration pricing strategy is a useful strategy because it helps an organization in
attracting a greater number of customers. There are many advantages of implementing this
strategy, for example, penetration pricing strategy enables an organization in getting its products
as well as services to be accepted quickly in the market by the customers. Besides this, the
organization gets a chance to gain a competitive advantage against competitors (Chan, Fung and
Ng, 2018). Customers who are able to find good quality products are likely to purchase the
products again. The strategy of penetration pricing can prove out to be very significant for an
organization. Having operations across various geographic regions of the world, Lidl has
implemented this strategy many times. This has resulted into an increase in its overall market
share as well as customer base.
If the strategy is implemented in an effective manner, it can lead to various benefits for
the company. Penetration pricing strategy works effectively for a company like Lidl because
customers are always interested in buying good quality products and that too at low and
affordable prices. If they are satisfied with the company’s products, they will recommend the
same to others and thus will lead to an increase in the overall sales of the company. Also, since
the company gains a strong competitive position within the market, there is an overall reduction
in the competition (What is Penetration Pricing? Advantages and Disadvantages for Brands,
2020). The customers become more loyal to the brand and thus, but its products frequently.
Relationship between penetration pricing strategy and customer attraction
Penetration pricing strategy is mainly designed in order to tempt the customers who are
seeking low priced goods in the market. The products are initially priced low in comparison to
the competitors and then increased gradually (De Rosa, Carragher and Finn, 2018). This helps in
drawing the attention of the customers immediately and encourage them to buy the products. It
can be said that there is a significant relationship between penetration pricing strategy as well as
customer attraction. This is because with low prices, customers are attracted to make a purchase.
By pricing beneath what modern purchasers assume to pay, groups can increase cognizance in

their services or products early on and attract customers faster. Instead of getting to compete with
mounted manufacturers completely on the cost their services or products affords, this penetration
strategy helps groups acquire new customers through rate alone.
Once those companies have grown their client base, they could start growing the rate to
capitalize on willingness to pay. This procedure of raising charges is the hardest component of a
penetration pricing strategy, as clients who soar ship to head for the inexpensive presenting are
much more likely to accomplish that once more as costs increase (Hanna and Dodge, 2017).
Price is important in figuring out how a great deal a company earns. The fees charged customers
instances the number of units bought equals the gross revenue for the company. Revenue is what
pays for every pastime of the organization (production, finance, income, distribution, and so on).
The cash this is left over (if any) is income. Managers try to price a charge with the intention to
allow the firm to earn a truthful return on its funding and will maximize go back on funding to
the best extent even as nonetheless maintaining a fair return.
Aims and Objectives
Research Aim
“To identify the impact of penetration pricing strategy in attracting customers towards
new product or services. A study on Lidl.”
Research Objectives
 To develop basic understanding regarding the penetration of pricing strategies in context
of an organisation.
 To determine the significance of penetration pricing strategy for company.
 To examine the relationship between penetration pricing strategy and customer attraction.
Research Questions
 What is penetration of pricing strategy in an organisation?
 What is the significance of penetration pricing strategy for a company?
 What is the relationship between penetration pricing strategy and customer attraction?
Research Methodology
Primary Methods

Primary techniques of research encompass surveys, questionnaires, commentary, field
assessments and many others. And are used at the same time as undertaking a number one
studies. These methods help in collecting first hand data which is accurate and reliable. Data that
is gathered through such methods answer questions that are particular to a particular research.
The collection of records through primary techniques consumes a variety of time in addition to
money (Hussain, Bui and Kim, 2017). One of the nice benefits of primary methods of studies are
that they can be personalize in keeping with the want of researcher in addition to enterprise.
Besides being correct and dependable, there's no dilution of the information this is accumulated
through primary techniques. In order to complete this report, primary methods of data collection
have been used.
Secondary Methods
On the other hand, there are also certain secondary methods that can be utilized for
collecting data. These include diaries, research papers, journals, books, reports etc. the secondary
methods of data collection are among the most cost-effective methods in comparison to
secondary methods. Besides this, the amount of time involved in the collection of the data
through these methods, is also less. Organizations that use this particular method of data
collection are able to save significant amount of time. The websites of government agencies are
also one of the ost significant methods of obtaining required data. This is because the
information provided there is accurate and can be relied upon.
Quantitative Research
This is a type of research that involves the collection as well as analysis of numerical
data. It is generally used in order to test causal relationships between two variables and make
predictions based on the same. The cause of quantitative studies is to generate understanding and
create expertise about the social global (Jadidbonab, Babaei and Mohammadi-ivatloo, 2019).
Quantitative research is utilized by social scientists, such as communique researchers, to look at
phenomena or occurrences affecting individuals. Social scientists are worried with the observe of
human beings. Quantitative research is a technique to degree variables, examine them and file
relationships amongst the studied variables through a numerical device. Its goal is to understand,
examine, describe and make destiny predictions of a product or a provider because after
expertise the numbers, it will become simpler for human beings to make suitable adjustments. It

offers good judgment of numbers and places its focus on convergent reasoning and exact and
unchanging records.
Qualitative Research
On the other hand, qualitative studies pursuits to get a higher information through first
hand revel in, sincere reporting, and quotations of actual conversations. Its pursuits to understand
how the individuals derive meaning from their environment, and how there that means affects
their behavior (Kahlen, Ketter and van Dalen, 2018). Qualitative studies is in-intensity studies
the use of various techniques, which objectives to understand why human beings suppose, feel,
react and behave within the way that they do. Samples tend to be small in the case of qualitative
interviewing or even focus businesses, due to the fact the aim is to generate principles,
techniques, or, for example, an appreciation of techniques that govern corporations or
establishments (Subramanian and Das, 2019). Qualitative research can pretty a good deal be
adapted to any research context that isn’t approximately understanding ‘what number of’. The
advantage of qualitative procedures is that you do no longer start with a ‘speculation’ that desires
to be proved, which can be very rigid. Rather, it is an open-ended approach that can be adapted
and changed even as the studies is ongoing, which complements the exceptional of the
information and insights generated.
Questionnaire
A questionnaire is a studies tool which include a sequence of questions for the reason of
accumulating information from respondents. It is one of the most widely used tools in research.
Questionnaires can be idea of as a kind of written interview. They may be finished head to head,
by phone, computer or submit. Questionnaires provide a pretty reasonably-priced, quick and
green manner of obtaining large amounts of records from a big pattern of people (Latifi and
et.al., 2018). Data can be gathered pretty fast because the researcher could no longer need to be
gift when the questionnaires were finished. This is useful for big populations whilst interviews
would be impractical. However, a problem with questionnaires is that respondents can also lie
because of social desirability. Most human beings need to give a high-quality photo of
themselves and so may additionally lie or bend the fact to look appropriate, e.g., scholars could
exaggerate revision length.

Sampling
Sampling is a process utilized in statistical analysis wherein a predetermined variety of
observations are taken from a larger population. The technique used to sample from a bigger
populace relies upon at the form of evaluation being executed, however it is able to include easy
random sampling or systematic sampling (Li and Chen, 2018). The range of individuals to your
pattern relies upon on the scale of the population, and on how precisely you want the outcomes
to symbolize the population as an entire.
Questionnaire
Q1 Are you aware about the pricing penetration strategy that can be implemented by Lidl?
a) Yes
b) No
Q2 What are the benefits for Lidl of implementing penetration of pricing strategy for a
business?
a) Reduce competition
b) Brand loyalty
c) All of the above
Q3 What are the major challenges associated with penetration of pricing strategy?
a) Potential price wars
b) Reduce brand goodwill
c) Inappropriate benefits for long-term
Q4 Does penetration of pricing strategy assist in gaining long term profits for a firm?
a) Yes
b) No
Q5 When can the penetration pricing strategy be implemented?
a) When product demand is highly price elastic
b) Product is suitable for a mass market
c) When the product will face stiff competition just after introduction
Q 6 Why is penetration pricing strategy important?
a) Helps in lowering the competition
b) Assists in achieving high sales

c) Initial start to making a product more profitable
Q7 Any recommendations for further improvements
Analysis
Theme 1: The pricing penetration strategy that can be implemented by Lidl
Q1 Are you aware about the pricing penetration strategy that can be
implemented by Lidl?
Frequency
Yes 30
No 10
Yes No
0
5
10
15
20
25
30
35
Chart Title
Interpretation: From the above graph, it can be concluded that 30 respondents have knowledge
about the concept of penetration pricing strategy. On the other hand, the remaining 10
respondents do not have any idea about the same.
Theme 2: Benefits for Lidl by implementing penetration of pricing strategy for a business
Q2. What are the benefits for Lidl of implementing penetration of
pricing strategy for a business?
Frequency
Reduce competition 8
Increased customer interest 7
Brand loyalty 7

All of the above 18
Reduce competition Increased customer
interest Brand loyalty All of the above
0
5
10
15
20
25
Chart Title
Interpretation: From the above graph, it can be stated that 8 respondents state the reductio in
competition is one of the benefits of implementing penetration pricing strategy, while 8
respondents state that increased customer interest and 8 respondents state that brand loyalty is the
benefit. Lastly, remaining 18 respondents state that all of the above provided options are the
benefits of implementing the strategy.
Theme 3: Major challenges associated with penetration of pricing strategy
Q3 What are the major challenges associated with penetration of pricing
strategy?
Frequency
Potential price wars 8
Reduce brand goodwill 15
Inappropriate benefits for long-term 17
Potential price wars Reduce brand goodwill Inappropriate benefits for
long-term
5.4
5.6
5.8
6
6.2
6.4
6.6
6.8
7
7.2
Chart Title

Interpretation: From the above graph, it can be stated that out of 40 respondents, 8 respondents
stated that potential price wars are one of the challenges that can take place due to penetration
pricing. On the other hand, 15 respondents were of the viewpoint that there is a reduced brand
goodwill. Lastly, remaining 17 respondents stated that if the strategy is not implemented
effectively, it can lead to creating negative benefits for the long term.
Theme 4: penetration of pricing strategy assist in gaining long term profits for a firm
Q4 Does penetration of pricing strategy assist in gaining long term profits for a
firm?
Frequency
Yes 15
No 5
Yes No
0
2
4
6
8
10
12
14
16
Chart Title
Interpretation: A significant proportion of respondents stated that the strategy of penetration
pricing can assist an organization in gaining profits for a long term (Qiu and et. al., 2017). On
the other hand, the remaining 5 respondents disagreed to this. Therefore, companies should
consider implementing penetration pricing when they expand into a considerably new market.
Theme 5: Penetration pricing strategy be implemented
Q5 When can the penetration pricing strategy be implemented? Frequency

When product demand is highly price elastic 25
Product is suitable for a mass market 7
When the product will face stiff competition just after introduction 6
Chart Title
a) Yes b) No
Interpretation: As per the viewpoint of 25 respondents, the penetration pricing strategy should
be implemented when the product has a highly elastic demand. On the other hand, 7 respondents
stated that when the product is suitable for a mass market, then only this strategy should be
implemented (Romanchenko and et.al., 2017). Lastly, the remaining 6 respondents stated that the
respective strategy should be implemented when the product will have to face a stiff competition
just after it has been introduced in the market.
Theme 6: Why is penetration pricing strategy important?
Q6 Why is penetration pricing strategy important? Frequency
Helps in lowering the competition 15
Assists in achieving high sales 10
Initial start to making a product more profitable 15