Penetration Pricing

Penetration pricing is a market strategy where a new product is introduced at a significantly lower price than competitors to quickly attract customers and gain market share. The initial low price is designed to break down the barriers of entry into a market, making it appealing for customers to try the new offering. This approach can be particularly effective when a product is new to the market or when a company enters a competitive industry. The low price entices customers away from existing solutions, creating an initial customer base that can be expanded over time. The trade-off is that the low pricing may initially result in minimal profit margins or even losses. However, the expectation is that the initial loss will be offset by the gained market share and customer loyalty, which can be monetized as the price is gradually increased or through the sale of additional products and services to the newly acquired customer base. Penetration pricing requires a robust financial strategy to sustain the initial period of low returns and a clear plan for transitioning to more sustainable pricing without alienating the customer base.

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