Today Netflix holds 51% of streaming subscriptions in the U.S. The company has avoided significant price hikes while at the same time building steady growth of its customer base. NetflixĪ true standout in the penetration pricing approach is Netflix. However, the company sells its razor blades at premium prices. In comparison, Gillette offers its core product at a lower cost price. The former often introduces new or seasonal products at a lower price. Other penetration pricing examples include Starbucks and Gillette. Smartphone providers, such as Android, use a penetration pricing strategy to win new customers and create loyalty to the brand. Still, when prices eventually increase, it’s not uncommon for customers to jump ship. Internet and cable providers use penetration pricing to entice new customers with a deal they can’t refuse. Companies that don’t withstand up-front losses should steer clear of this pricing strategy. Product professionals realize that a penetration pricing strategy is not a sustainable long-term approach without ideal price points without customer support. However, the strategy can also result in churn or loss when the company increases the price. Penetration pricing strategies can initially entice new customers to purchase or subscribe to a service. In turn, the strategy disrupts existing businesses in the space.

They can quickly build awareness with potential customers. Introducing a new product or service priced enticingly low in an established market helps a company penetrate that market. The strategy allows for an initial offering to attract new customers by luring them away from the competition. This pricing strategy offers a new product or service at a lower price. Penetration pricing, in particular, is closely informed by competitor pricing. There are five key pricing strategies: price skimming, premium pricing, economy pricing, bundle pricing, and penetration pricing. These losses are viewed as a necessary sacrifice to gain market share and entice customers away from competitors.” “Because this strategy requires companies to slash prices to almost below market value, it’s usually employed by new businesses in a high-growth phase that are prepared to absorb initial losses. Meg Prater, a managing editor of the HubSpot Blog, explains: Moreover, the system provides an insight into competitor pricing, the overall value of a product or service, and a company’s financial stability.

Penetration pricing strategy involves having a solid understanding of what the market will tolerate. Effectively pricing products or services is more nuanced than just looking at profit margins.

Skimming pricing vs penetration pricing