Penetration pricing
Penetration pricing is setting a new product's price low at launch to win market share quickly, planning to raise the price later once customers are won over; it is the opposite strategy to price skimming.
See it move
Penetration pricing launches at a low price to win share fast, then raises it once demand is secured. Novara Appliances launches a coffee machine at €55, a €7 margin, selling 40,000 units for €280,000 contribution. In year two it raises the price to €70, a €22 margin, and even at only 30,000 units earns €660,000.
Check yourself
Marchetti Home Goods is about to launch a new blender. Variable cost per unit is €18. The company estimates it could sell 50,000 units in year one at a penetration price of €24, versus only 15,000 units at a skimming price of €40. Which statement about the two strategies is correct?