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What is penetration pricing?
Penetration pricing is when you price a product very low (often below your cost) in order to capture market share from competitors. It is a technique that can work for an established company with a lot of cash to squeeze out other companies because it can survive on its cash reserves and other more profitable products longer than the competitors. Amazon practiced penetration pricing in its very early days and succeeded because it had a great deal of cash from its investors. Amazon is an exception to the rule that a start-up company generally cannot succeed with a penetration pricing strategy. After all, the key to success is creating a scalable sales model. In general, penetration pricing is not scalable.
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