What is the concept of penetration pricing?

The concept of penetration pricing involves setting low prices for a new product in order to enter a competitive market quickly and attract customers. This strategy aims to gain market share rapidly by making the product accessible to a larger audience, which can help establish a customer base and encourage brand loyalty. By offering lower initial prices, businesses can entice consumers who might be reluctant to switch from established competitors or hesitant to try new products due to higher costs. Once a strong customer base is developed, the company may gradually increase prices over time.

This approach is particularly effective in markets where consumers are price-sensitive or when competition is fierce. By positioning the product at a lower price point, businesses can differentiate themselves from existing market players, often leading to higher sales volumes and the opportunity to build reputation and presence in the market.