Which pricing method involves charging less initially and increasing prices later?

The pricing method that involves charging less initially and increasing prices later is known as market penetration pricing. This strategy is designed to attract a large number of customers quickly by offering lower prices than competitors. The primary goal is to establish a strong market presence and build a loyal customer base. Once this base is established and the product gains traction in the market, prices can be raised to enhance profitability and cover initial losses that may have occurred due to the lower price point.

Market penetration is particularly effective in highly competitive markets where price sensitivity is a significant factor in consumer decision-making. By starting with lower prices, businesses can encourage trials of their product, leading to increased sales volume, which can ultimately support higher prices once the customer base is solidified.

Understanding this pricing strategy is important for businesses seeking to launch new products or enter new markets, as it can significantly impact market share and long-term profitability.