What is penetration pricing primarily used for?

Penetration pricing is a strategy primarily designed to set prices below those of competing brands with the objective of quickly gaining market share. This approach is often utilized by new entrants in a market or by established companies looking to boost sales of a particular product. By offering lower prices initially, businesses can attract customers who might be hesitant to try a new product or brand due to the perceived risk or higher cost. Once a significant market presence is established, companies may then gradually increase their prices as their brand loyalty strengthens and customers recognize the value of their offerings.

In contrast, maintaining high prices for premium products involves a different strategy focused on exclusivity and perceived value, rather than acquiring market share through lower pricing. Charging a consistent low price for everyday purchases aligns more with everyday low pricing (EDLP) strategies, which do not necessarily aim at gaining rapid market penetration. Lastly, establishing a price anchor is used for psychological pricing strategies to influence customer perceptions of value, rather than to penetrate a market quickly. Thus, the essence of penetration pricing lies in its immediate goal of capturing market share through competitive pricing.