Price penetration

Price penetration is a pricing strategy where a product is launched at a low price, which is then gradually increased over time. The low price pulls customers in at the start, and the price only creeps up once the product is better known.

For example, an escape room opening in a town where nobody knows it might charge £8 per player for the first two months, then £12 once word has spread, and £15 after six months.

Advantages

• A low initial price is attractive, so customers are more willing to try something new or switch from a competitor they already use.
• It helps a new business establish itself in the market, because a steady stream of early customers builds awareness and gets people talking about the product.
• Customers may stay loyal when the price goes up, because they already know and like the product and are used to buying it.
• The low price only lasts a short time, so as it rises each sale brings in more money and revenue can recover over the following months.

Disadvantages

• A low price means low profits, especially in the short term. Each sale brings in less money, so the business may struggle to cover its costs at first.
• There is no guarantee customers will keep buying once the price rises. Some may decide the higher price is not worth it and leave.