#Define penetration pricing full#
#Define penetration pricing professional#
#Define penetration pricing free#

They’ll offer the first 3-6 months at a promotional rate, for example, or throw in incentives like free trials, discounts, and add-ons. A clothing brand might host a private sale to celebrate its new autumn/winter collection, for example.ĭigital services like streaming services, SaaS product vendors, and telecom companies often use this strategy to scoop up market share.

Some organizations generate buzz around new product launches and run promos that undercut competitors. Once they have enough consistent sales and reviews to improve their visibility, they’ll increase prices to their true market value. On Amazon, the world’s largest ecommerce marketplace, it’s common for new users to significantly discount their products and forego profits at first. New businesses (especially those in saturated markets) need an edge to get noticed and build momentum.

#Define penetration pricing full#

Whether it’s for a software or physical product, a price penetration strategy gives the vendor the chance to refine it, understand its use cases, and zero in on its marketing strategy before fully launching it and justifying its full value. If they aren’t sure how their product is differentiated, they’ll sell it to small groups of buyers at low initial prices to test customer reactions or understand how they actually use the product. Since they don’t know who it’s best for (or if it works at all), gathering user data and feedback is more important than immediate profitability.Ĭompanies selling physical products use this method too. SaaS companies frequently do this when they’re rolling out a new product or adding new paid features. Test Product-Market Fitįor new companies that aren’t quite sure where their product fits into the marketplace, some revenue is better than none.

#Define penetration pricing professional#

Ecommerce brands, SaaS businesses, streaming services, telecom companies, professional services providers, and countless other industries often use price penetration to gain a competitive advantage. The penetration price isn’t meant to be sustainable - it’s meant to increase over time (and hopefully retain a loyal customer base with it).īecause of its versatility, all types of companies use it. SynonymsĬompanies use penetration pricing when they’re chasing brand awareness, sales volume, or user adoption over short-term revenue and profitability. Vendors must also be transparent about their intention to raise their price so as to not frustrate the customers they gain.

Since penetration pricing works on the assumption that customers will be happy enough with the product to pay a higher price, product-market fit, overall quality, and customer retention efforts are essential to its success. The idea behind this strategy is that with a greater market share and higher sales volumes, a company can eventually lower production costs and turn over inventory more quickly. Similar to loss leader pricing, its main goal is to attract the maximum number of potential customers, even if it means reducing profit margins or taking a loss. Free listings to attract sellers to a marketplace.A low-cost beta version of a SaaS product that’s set to rise in price after launch.A special six-month discount for switching from a competitor.A buy-one-get-one-free (BOGO) offer for this weekend only.Once it gains enough traction (i.e., market penetration), the business will either increase the price to a sustainable level or keep it low to continue drawing new customers.Ī penetration price could either be temporary or baked into its long-term growth strategy. Penetration pricing is a pricing strategy where a business introduces customers to its product at a low price, often significantly below the eventual market price, to draw them in and gain market share quickly. Data Required for Effective Penetration Pricing.