Penetration Pricing Strategy: Pros and ConsĪs is the case with really anything, there are both good and bad aspects of penetration pricing. More often than not, a price skimming strategy will include the price slowly dropping over time to become more competitive with the rest of the market. However, it is ideal for luxury brands that want a select number of high-end customers. This is a good strategy if you are not too concerned about getting vast sales from most of the population. Price skimming is about setting the initial cost of a product or service very high, which is an excellent strategy for luxury products that are supposed to be very high-end. There is some confusion between penetration pricing and price skimming, so let’s explain. A good example is how your internet provider tells you that you only pay $20 per month for the first six months, and then after those six months are up, they’ll raise the price. In mostly all cases, this low initial cost will eventually rise, often to the point where it may even cancel out the initial discount. But, again, it’s about getting people to think that they are getting the best deal if they join now. By setting the initial price at a very low level, the hope is that people will not resist such a good deal.

Generally speaking, this is a strategy that many new online businesses use who are looking to rapidly expand, although it is a business model still in use by many larger businesses too.Ī very extreme form of penetration pricing is known as predatory pricing, which involves setting the cost of your goods or services just slightly lower than the next cheapest alternative. What is Penetration Pricing?Ī penetration pricing strategy is a type of marketing and sales strategy that involves trying to get new customers and take customers away from the competition by setting the initial cost of the goods or services at a very low level. Let’s discuss penetration pricing strategy, how it works, what the benefits are, and how you can use this in your online business. The proof is that penetration pricing is a great way to sink your hook into new customers, and it’s why so many are using it. If you are looking for proof that penetration pricing works, look no further than giants such as Netflix and any other service where you get an initial discount. A penetration pricing strategy is a great way to break through a market and build both awareness and popularity of a brand, service, or product.

What is penetration pricing