What is penetration pricing?
The basic idea of penetration pricing is to attract customers to a new product or service by offering a low price in the early market phase.
Explanation
In the case of price penetration, companies promote new products or services by setting a low price. This strategy can lead to market penetration and result in higher market shares and sales volumes by winning customers from competitors.
What to watch out for
Once prices increase, there is a risk of losing customers. Customers often expect permanently low prices and may become dissatisfied and stop purchasing the product or service if the prices increase.
By introducing a low entry price, consumers may get the impression that the brand is low-quality.
Further reading
Penetration Pricing - Investopedia
Penetration Pricing - Corporate Finance Institute
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