Penetration Pricing

About

Penetration pricing is a strategic marketing approach where businesses set initially low prices for new products or services to quickly gain market share. This strategy is particularly effective for new entrants in a market, as it allows them to differentiate themselves from established competitors by offering more attractive pricing. By setting prices below those of competitors, companies aim to attract a large customer base and build brand loyalty, even if it means making only nominal profits initially. The ultimate goal of penetration pricing is to increase prices over time once a significant market share has been secured, thereby maximizing profits. This strategy is often seen in industries with elastic demand, such as streaming services, where small price changes can significantly impact demand. Companies like Netflix have successfully used penetration pricing to establish themselves in competitive markets, offering low introductory prices before gradually increasing them as their customer base grows and becomes more loyal.