Penetration pricing is the practice of setting an initial price much lower than the eventual standard price. Using skimming, they market products at high prices with relatively high margins. Taken to the extreme, penetration pricing is known as predatory pricingwhen a firm initially sells a product or service at unsustainably low prices to eliminate competition and establish a monopoly. Thus, the company makes more money from the cartridges than it does for the printer itself. Disadvantages While often profitable, penetration pricing has some major drawbacks including customer dissatisfaction, and false loyalty. How Target is different from its competitors such as Walmart and Costco.
Costco and Kroger, two major grocery store chains, use penetration pricing for the organic foods they sell.