Low profit margins – The biggest drawback to penetration pricing is that it can lead to thin profit margins, especially in the early stages. The loyalty should follow shortly afterwards, once you’ve established yourself as a company that consistently produces a high-quality product and exceptional customer service. This was the case for Netflix, IKEA, and MeUndies-alongside many other D2C brands like Allbirds and Who Gives a Crap (a toilet paper brand). The promise of being able to try new high-quality products-like MeUndies’s briefs-combined with a limited-time offer (“try now before the price increases”) can often motivate shoppers to give you a try.Īccelerate brand awareness and loyalty – If you’re a small, new, or relatively unknown brand, then penetration pricing can help to build awareness. It’s about getting customers interested in your product by offering a good deal.

The monthly price was low enough to convince people to give Netflix’s unique business model a chance.Īttract price-sensitive customers – Penetration pricing isn't necessarily about having the lowest possible price. Their penetration pricing approach helped them lure customers away from the dominant player in the video rental space. Build market-share – Back in 2000, Netflix was at a huge disadvantage compared to Blockbuster.

A company that used penetration pricing