Launch price

The launch price obeys the technique of establishing relatively low prices for the launch of a product with respect to its eventual market price. The expectation is that the low starting price will ensure market acceptance by breaking existing allegiances to other brands. The introductory price is generally associated with a marketing objective of increasing market share or sales volume rather than short-term profit maximization.

The advantages of the launch price for the company are:

• It can lead to rapid diffusion and adoption of the product.
• It can provide high market penetration rates quickly.
• You can catch the competition by surprise, without giving them time to react.
• It can create trust between the initial adopters segment.
• You can create a good crop broth for the mouth-earth.
• It creates pressures on cost control and cost reduction from the beginning leading to greater efficiency later.
• Incentive the entry of new competitors. Low prices act as a barrier of entry (see analysis of the 5 forces of Porter).
• You can create a larger billing along the distribution channel. It can create critical enthusiasm and support within the channel.
• It can be based on a pricing on marginal cost, which is economically efficient.

The main disadvantage of introductory pricing is that it sets long-term expectations for the product, and it sets preconceptions for the brand and the company. This makes it difficult to raise prices later. Furthermore, some experts say that penetration pricing appeals only to bargain hunters and that they will switch products as soon as prices are raised. There is much controversy about whether it is better to raise prices gradually or over a period of years (so that the consumer does not notice) or to make a single big increase (which is more efficient). A common solution to the price expectations problem is to set the long-term market price as the starting price, but including the initial discount coupon (see sales promotion). Thus, the consumer perceives a high price even though the current selling price is low. Another potential drawback is that low margins may not be sustained long enough for the strategy to be effective.

The introductory price is more appropriate when:

• The elasticity of demand is high.
• There are substantial economies of scale available.
• The product is good for a mass market.
• The product will face a great competition after the launch.
• In sectors where standardization is important, the product that achieves great market penetration becomes the standard (such as Microsoft Windows) and other products, even higher, end up being marginalized.

An interesting variant of the penetration pricing strategy is bait and hook in which an initial product is sold at a low price but replacements or other complementary products sold subsequently are sold at higher prices. This has become an almost universal tactic for home printers where ink cartridges are exorbitantly expensive compared to those in printers.