As a new camera rental business, it can take time to acquire your first customers, especially given how competitive the industry can be. The most significant way to attract customers away from your competitors is by offering people a better deal. Penetration pricing can be an effective strategy to help you break into the market and get an edge early in your business.
The camera rental industry is highly competitive, and there are likely established players in your area. These existing companies have the advantage of already having a loyal customer base, so how can you direct people away from them to a new business? By pricing your camera rental competitively, you can begin to attract your first customers.
What is penetration pricing?
Penetration pricing is a pricing strategy where a business sets a lower price for a product or service than its competitors. This strategy aims to attract customers to a business and gain market share. It is particularly effective for new businesses wanting to enter a competitive market and acquire their first customers while establishing their reputation.
The strategy works because it involves pricing products below what current consumers expect to pay. This increases awareness for a business early on and helps to attract customers faster. Instead of competing with established businesses based on value, penetration pricing helps new businesses get their first customers through price alone.
Once the business has established its own customer base, it can start to increase what they charge based on what people are willing to pay. This process can be challenging as the customers that switch from a competitor to you are likely to do it again if there is a cheaper offering. So, businesses using this strategy need to balance competitiveness with customer intent.
Start your rental business for just $29/month
Put your toes in the water and test the demand in your area with a rental website for just $29/month.
Developing a penetration pricing strategy
Before developing a penetration pricing strategy, it’s essential to understand your local camera rental market. You need to consider who the customers are and whom you want to be the target audience for your business. This can be done with market research and should be bolstered by analyzing your competitor to identify the best route to go with your pricing.
Once you understand your local market well, it’s time to develop a competitive pricing strategy. Of course, you will be setting your rental price lower than your competitors with this strategy, but exactly how much depends on your price elasticity and profit margins. You can also use discounts and promotions to incentivize customers to choose your business.
Implementing a penetration pricing strategy
When Booqable’s founder, Bjinse van der Zwaag, started his camera rental business, Budgetcam, he used penetration pricing to gain market share. He offered the same cameras as his competitors but charged the same for three days as they charged for one day. This meant that customers were getting two extra with the cameras than they were with competitors.
This is just one example, and it won’t work for everyone. However, it can inspire how you price your camera rentals. The key is creating a competitive pricing strategy while offering something you’re comfortable offering. You don’t want to be losing money on rentals. so you must find a balance between profitability and customer acquisition to succeed.
Start with building your rental website
Every new rental business starts with a website to get their first bookings.
Potential risks and challenges
While penetration pricing can be a very effective pricing strategy, there are also some risks and challenges that you need to consider. There is the potential for taking a short-term profit loss from setting lower prices. It’s crucial to establish the level of risk you’re willing to take before implementing this strategy. If you set them too low, it can be hard to be successful.
Secondly, Increasing prices in the future can be challenging, especially if customers are already accustomed to lower prices. You don’t want to set prices so low that you don’t give yourself any wriggle room. Pricing needs to have some elasticity to account for profit margins, future discounts, and the sustainability of your business model.
Should you use penetration pricing?
Penetration pricing can be tricky, but when done correctly, it can be very effective. You need to accompany it with excellent customer service to quickly build loyalty in your customer base and establish a strong relationship with them. This will make it easier to increase your pricing later on while retaining customers.
This method can help you get your foot in the door when competing in an established rental market. However, it can take a lot of work to regain the revenue lost by offering lower prices. Remember to balance risk and reward to ensure that this strategy is the right one for you before committing to using penetration pricing within your camera rental business.
