Penetration pricing: launch low only if you can raise the price later

Penetration pricing means launching a product at a deliberately low price to win customers quickly, then raising the price once they are settled in. Researchers at the University of Cologne describe it as pricing low, even below cost, to gain market share and reach economies of scale. It works only when something other than the price keeps buyers around after the increase, so plan the increase before you set the launch price.

The low price is the easy part. Anyone can charge less. The question is whether you can charge more later without losing the customers you paid to win.

1. Penetration pricing is a deliberate bet, and most companies do not make it

Martin Spann, Marc Fischer and Gerard Tellis studied 663 new digital camera models from 79 brands over four years in one large European market, published in Marketing Science. Penetration and skimming were each used for about 20% of new models. The other 60% were simply priced near the market.

The same study found penetration was more common after the market had taken off and as competition grew. It also found the catch: some competitors matched the penetration price, which kept the low-price firm from reaching the scale it was paying for.

Short version: if a rival can match your price next week, your low price buys you a smaller margin and nothing else. If you are weighing the opposite approach, our post on pricing strategy compares the main options.

2. Launch low only if switching away will cost your customers something

A low price wins customers who care about price. Those same customers leave when someone else is cheaper, unless leaving has a cost: their data is in your product, their team is trained on it, or the product gets more useful as more people use it.

Uber's 2019 IPO filing shows what happens without that cost. It described its markets as having low barriers to entry, low switching costs and well-funded competitors, and said it had offered significant driver incentives and consumer discounts to stay competitive. It reported a loss from operations of $4,080 million in 2017 and $3,033 million in 2018. The filing also warned that as Uber tried to reduce driver incentives to improve its results, it expected driver dissatisfaction to generally increase.

That is the trap in one company: the low price was buying network scale, but customers on both sides could leave whenever the subsidy shrank. (Most startups do not have a few billion dollars to find this out with.)

Short version: before you discount, write down what stops a customer from leaving when the price goes up. If the answer is "nothing," charge a normal price.

3. Plan the increase before launch, and tie it to something new

Disney+ is a public example of a low launch price followed by steady increases. It launched in November 2019, and its monthly price rose from $6.99 to $7.99 on March 26, 2021. Disney announced it about three months earlier, in December 2020, at an investor event where it also unveiled new Marvel and Star Wars series. The CFO tied the change to the additional value Disney said it was adding to the service, and Disney+ had passed 100 million global subscribers by then.

The steps kept coming. From October 21, 2025, Disney+ with ads went up $2 to $11.99 a month and Disney+ Premium went up $3 to $18.99.

Two habits are worth copying. Announce the increase months ahead, and give buyers a reason that is about the product, such as more features, more content or more support. "We were too cheap" is true, and nobody wants to hear it.

4. Raise the price in small steps, because the launch price becomes the yardstick

Buyers judge a price against what they paid before. Kalyanaram and Winer's review of reference price research found consumers rely on past prices to form a reference price and react more strongly to prices above it than to prices below it. Your launch price is the past price your customers remember.

Netflix learned this in 2011. It raised US prices by as much as 60 percent effective September 1, and ended September with about 800,000 fewer US subscribers than in June, against the 600,000 loss it had forecast. Reed Hastings said, "We became a symbol of the evil, greedy corporation." The shares fell 35 percent on October 25, 2011.

Its 2014 increase was handled differently. In May 2014, Netflix began raising its standard plan from $7.99, first to $8.99 and later to $9.99, while existing $7.99 subscribers were grandfathered until May 2016. UBS analysts estimated about 17 million people would then see a $2 increase. The list price moved a dollar at a time, and the people already paying $7.99 got about two years before their bill changed.

Short version: raise the price in small steps, and give existing customers a dated, generous runway before theirs changes.

5. In B2B, write the future price into the first contract

Business buyers sign contracts, which makes the increase easier to plan and harder to sneak in. Put your list price on the order form, show the launch discount as its own line, and give that line an end date. The buyer then approves the real price on day one and the discount on top of it.

Here is a made-up example. Tomas sells scheduling software to physiotherapy clinics. His list price is $60 per clinician per month, and he launches at $30 for the first year. A clinic with 8 clinicians pays $240 a month, or $2,880 for year one.

At full list price, that clinic would pay $480 a month, or $5,760 a year. Doubling a bill in one renewal is how you get a meeting titled "quick sync" with the clinic owner. So Tomas writes the steps into the contract: $45 in year two ($360 a month, $4,320 a year), then $60 in year three.

Before he commits, he asks eight clinic managers two questions:

1. If this cost $60 per clinician from the start, would you have bought it?
2. A year from now, what would it take for you to go back to how you schedule today?

If most managers say they would drop back to their old spreadsheet at $45, the low price is the only thing selling the product, and the plan will fail at renewal. If they say their front desk has rebuilt its week around the tool, the increase has something to stand on. For questions that put a number on the acceptable price, see our posts on willingness to pay and the Van Westendorp price sensitivity meter.

Your next step

Write down your launch price, your target price and the date you will reach it, then ask five target buyers whether they would still use the product at the target price. Instant Expert finds people matching a description, such as "operations managers at physiotherapy clinics who choose scheduling software," sends them paid invitations for a short call or a written or voice answer, and you pay only if someone books or answers. For help designing the price steps, see the pricing strategy consultants and pricing and packaging changes experts directory pages.