Penetration Pricing Strategy: Definition, Strategies, Examples, and Pros/Cons

What is Penetration Pricing?

Penetration pricing is a pricing approach where a new product or service enters the market at a deliberately low initial price. The aim is to instantly capture attention, entice a broad customer base, and outshine competitors.

This pricing strategy revolves around the belief that customers will be drawn to the new offering due to its attractive, budget-friendly price point. It’s like opening the door to the market by providing an irresistible deal.

Imagine it as a bold market entry – offering your product at a significantly lower cost to disrupt the existing competition and allure customers with affordability.

The key is to quickly gain a foothold, spark word-of-mouth, and, over time, potentially adjust prices. Essentially, penetration pricing is the dynamic strategy of making a splash in the market with an unbeatable offer, setting the stage for long-term success.

Purpose of Penetration Pricing Strategy

The purpose of penetration pricing is to quickly gain a strong foothold in the market by enticing customers with an initial low price. It’s a strategic move aimed at quickly capturing attention, attracting a wide customer base, and outshining competitors. This approach creates an entry point, driving rapid adoption and brand recognition, setting the stage for long-term success and market growth.

Advantages of Penetration Pricing

Let’s explore some pros of market penetration pricing strategy:

Speedy Market Entry

Penetration pricing is like a VIP pass for your product in the market. By setting a lower initial price, you swiftly jump the queue and make a grand entrance. It’s the express lane to getting noticed, allowing your business to hit the ground running and reach customers faster than traditional pricing methods.

Customer Magnetism

Think of penetration pricing as a magnetic force that pulls customers in. The lower price creates a strong attraction, drawing in a diverse crowd of potential buyers. It’s like turning your product into a magnetic personality that people can’t resist, making them curious to try what you have to offer.

Read More: Price Skimming Strategy

Competitive Advantage

Penetration pricing is your secret weapon in the business battlefield. It’s like starting a race with a boost, putting you ahead of competitors right from the beginning. This strategy creates a competitive edge, making it challenging for others to catch up because you’ve already captured the attention and loyalty of a significant customer base.

Market Domination

Picture penetration pricing as claiming your territory on the map. By offering a lower price, you quickly conquer more ground in the market. It’s like expanding your empire, winning over a larger share of customers, and establishing dominance in your industry.

Brand Building Blocks

Penetration pricing is the cornerstone of your brand’s foundation. It’s like laying the first bricks of a strong building. The initial low price serves as the building block, helping you construct a solid brand presence. This sets the stage for future growth, recognition, and the overall success of your business.

Read More: What is Product Life Cycle Pricing?

Disadvantages of Penetration Pricing

With many benefits, the penetration pricing strategy also has some drawbacks. They are:

Erosion of Brand Value

Penetration pricing can undercut the perceived value of your brand. It’s like selling a sports car for the price of a bicycle. When customers get used to lower prices, they might question the true worth of your product, diminishing its prestige and quality perception.

Short-Term Profit Hit

Initially, the lower prices might hit your profit margins like a sudden rainstorm. It’s like planting seeds but not reaping the harvest immediately. While aiming for long-term gains, the strategy might dent your short-term profitability, affecting immediate revenue.

Read More: What is Product Mix Pricing? Definition

Customer Loyalty Challenges

Penetration pricing could attract fickle customers who are here today, gone tomorrow. It’s like being friends with someone who easily jumps ship. Customers might stick around only for the lower prices, making it hard to build lasting loyalty or retain them when prices rise.

Competitor Retaliation

Just as you throw a stone in a pond and cause ripples, your low prices might prompt competitors to react. It’s like starting a price war where everyone tries to outdo each other. Competitors might retaliate by slashing their own prices, escalating a battle that could harm everyone’s profits.

Profit Sustainability

Sustaining profits under penetration pricing is like walking a tightrope. While aiming to gather customers quickly, the strategy might not secure enough profits to cover costs. It’s crucial to strike a balance between capturing the market and ensuring sustainable profitability in the long run.

Read More: What is an Odd Pricing Strategy?

Strategies For Penetration Pricing

Now, let’s explore some strategies that you might find best when implementing price penetration in your business:

New Product Entry

This strategy is like a grand entrance at a party. You’re introducing a brand-new item into the market, and to catch everyone’s attention, you offer it at a lower price initially. It’s like the new kid on the block offering free cookies to make friends. The aim is to quickly grab attention, entice customers, and establish a foothold in the market amidst existing competitors.

Market Expansion

Imagine you’re a traveling circus moving to a new town. To gather a crowd quickly, you offer discounted tickets for the first show. Similarly, when trying to expand into new markets or regions, businesses might use penetration pricing to attract local customers. This approach aims to swiftly attract attention and build a customer base in unfamiliar territories.

Read More: Psychological Pricing Strategy

Promotion of New Features

Suppose a restaurant introduces a deluxe burger with extra toppings. To entice customers to try it, they offer it at a special discounted price initially. Similarly, when a company adds new features or upgrades to an existing product, it might use penetration pricing to highlight these additions and encourage customers to upgrade or switch to the newer version.

Product Liquidation

Picture a clearance sale at a store where old stock is sold at heavily discounted prices to make space for new items. Penetration pricing can be used to quickly sell off excess inventory or older products nearing the end of their lifecycle. It’s like giving a final chance to these items before bidding them adieu.

Seasonal and Promotional Offers

Think of Black Friday or holiday sales where prices drop significantly for a limited period. Companies utilize penetration pricing during special events, holidays, or seasonal peaks to attract more customers. It’s like throwing a party and offering discounted tickets for a limited time to increase attendance and enthusiasm.

Read More: Promotional Pricing Strategy

Examples of Penetration Pricing

Here are four examples of companies using penetration pricing along with how they implement this strategy:


Approach: Netflix revolutionized the entertainment industry with its subscription-based streaming service. During its early days, Netflix offered subscription plans at significantly lower prices compared to traditional cable packages.

Implementation: By providing a vast library of movies and TV shows at a fraction of the cost of cable, Netflix enticed viewers to switch from traditional television. This strategy allowed Netflix to rapidly grow its subscriber base and dominate the streaming market.


Approach: Amazon entered the e-commerce market by offering a wide range of products at competitive prices.

Implementation: The company initially focused on pricing its products competitively, sometimes even at a loss, to attract customers. Amazon’s penetration pricing strategy aimed to capture market share by emphasizing low prices and convenience, gradually expanding its offerings and services.

Read More: geographical Pricing Strategy


Approach: Uber disrupted the taxi industry with its ride-hailing service, entering markets worldwide.

Implementation: Uber employed penetration pricing by offering rides at rates often lower than traditional taxis. This strategy attracted customers seeking cost-effective transportation options, swiftly gaining a loyal user base and market dominance.

Dollar Shave Club

Approach: Dollar Shave Club targeted the shaving industry with affordable razor subscriptions.

Implementation: By offering quality razors and grooming products at lower prices than established brands, Dollar Shave Club attracted customers looking for cost-effective alternatives. This penetration pricing strategy disrupted the market by providing high-value products at a fraction of the cost of traditional shaving brands.

Read Next: Price Lining in Marketing

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