Penetration pricing is a strategy where a brand enters a market with prices significantly below competitors to rapidly acquire customers and establish market share. The assumption is that once customers try the product and become loyal, prices can be gradually increased.
This strategy works best in markets with high price sensitivity, significant economies of scale (where higher volume reduces per-unit costs), and low switching costs that make it easy for customers to try new brands. The risk is that low prices may position the brand as "cheap" and make future price increases difficult.
Many DTC brands have used penetration pricing during their growth phase, offering aggressive promotions and discounts to acquire customers. The challenge comes later—transitioning from discount-driven growth to sustainable pricing often causes customer churn and requires significant brand-building investment.