Explain how a company selling a new brand of milk chocolate bar may benefit from using a penetration pricing strategy. (4 marks)

Penetration pricing can be described as when a product enters the market with a low price initially, with the hope of being able to gain customer loyalty and thus market share, allowing them to eventually increase their price without losing out on sales. Due to the fact that the confectionery industry - in this case the milk chocolate sector specifically - often has little product differentiation and relatively price elastic demand, penetration pricing may be beneficial for a number of reasons. One benefit is the fact that it allows the company to attract new customers, who are often more likely to try out a new product if it is sold at a low price. This will then increase the number of sales and if sustained it should allow them to increase their market share. Another benefit is the fact that it often causes the business to be conscious of trying to minimise their unit costs from the start, allowing them to become more productively efficient.