Penetration Pricing

Penetration pricing is the launch tactic of deliberately starting with a low price to win customers and market share quickly. The low price lowers the barrier to entry; the bet pays off if the customers you win stay, and the price can rise later.

When penetration makes sense

• The market is price-sensitive and crowded, and you need a foothold against established players.
• Your business model benefits from network or scale effects: every additional customer makes the product better or cheaper.
• Switching costs are high: once someone is a customer they stay, so customers won early pay off over time.

The risks

Price anchors value perception: launch very cheap and you are perceived as the cheap solution, and later increases take explaining. Below your price floor, penetration also becomes a planned loss. Plan the later price increase from day one, communicate it transparently, and protect existing customers through grandfathering or transition periods.

The opposite tactic is price skimming. In the 9-step process, the launch tactic is chosen in step 7 (price strategy).