Introductory Price: Definition, Use Cases, and Sales Impact

Think of two well-known brands — Apple and Xiaomi. Both dominate headlines with new product launches, yet their pricing strategies couldn’t be more different. When a new iPhone is released, it typically comes with a high introductory price, allowing Apple to generate significant revenue from day one. Xiaomi, on the other hand, often sets its initial prices well below the market average to quickly capture market share.

In this article, we’ll explore what an introductory price is, how it fits into different e-commerce pricing strategies, and what factors to consider to ensure your launch pricing supports — rather than harms — your long-term sales.

Contents:

What Is an Introductory Price?

The Role of Introductory Pricing in Different Strategies

Examples of Introductory Pricing

Key Mistakes When Forming an Introductory Price

How to Set a Price for a New Product

What Is an Introductory Price?

An introductory price is the price a manufacturer or retailer sets when launching a new product to market. This price is shaped by the chosen pricing strategy and is closely tied to brand perception and the perceived value of the product.

In e-commerce, an introductory price helps to:

• Create a sense of value (with a higher price) or benefit (with a lower price);
• Stand out from competitors;
• Test market demand and customer reactions for future pricing adjustments.

Brands can launch a product with either a reduced or inflated introductory price — both are valid, strategic approaches depending on the company’s goals.

In the first case, the brand starts with a lower price and gradually increases it. This tactic uses a powerful psychological trigger: customers see the low price as a limited-time opportunity to save money, which speeds up the decision-making process. Once users are familiar with the product, small price increases are usually accepted without resistance, as the product has already become part of their routine.

In the second case, a higher initial price is set, then lowered over time. This allows the brand to capture early revenue from loyal fans and early adopters who are willing to pay more to be first. As the price decreases, the product becomes more accessible to a wider audience, allowing the company to reach new market segments.

The Role of Introductory Pricing in Different Strategies

Brands and retailers take different approaches to setting an introductory price — and these decisions are rarely random. The choice depends on several key factors:

• Business objectives (e.g., capturing market share, boosting brand awareness, maximizing early revenue);
• Competitor pricing and market positioning;
• Target audience characteristics, including price sensitivity and buying behavior.

The introductory price should align with the overall pricing strategy, as it influences both short-term pricing decisions and long-term price dynamics.

Two common pricing strategies use the introductory price as a key lever — either increasing or decreasing it over time to reach strategic goals. These are:

• Penetration pricing, where the product enters the market at a low price point;
• Price skimming, where the product launches at a high price and gradually becomes more affordable.

Let’s take a closer look at each.

Penetration Pricing

Penetration pricing involves launching a product with a deliberately low price to quickly attract customers and gain market share.

How it works:

• The company sets an initially low price to appeal to a broad audience, particularly price-sensitive customers.
• This strategy helps build a user base quickly, especially in highly competitive markets like FMCG or digital services in e-commerce.
• As customers grow accustomed to the product, they are more likely to stick with it.
• Once the brand has achieved sufficient market presence or user loyalty, it gradually increases the price.
• Because the product has become part of the buyer’s routine, the price hike meets less resistance, allowing the business to improve margins and boost revenue.

Price Skimming

Price skimming is a strategy where a company sets a high initial price for a product, then gradually lowers it over time.

The high price attracts early adopters — customers who are willing to pay a premium for novelty, status, or emotional appeal. As the price decreases, the company shifts focus to price-sensitive buyers, who are more likely to choose the product once it becomes more affordable.

Advantages of price skimming:

• Maximizing profit from early sales to customers with high purchasing power right after the launch.
• Minimizing the risk of lost profit by ensuring strong margins early on, even if sales volume is lower at the start.

Calculating the Optimal Price Level: Key Factors to Consider

Setting the right introductory price is a crucial decision that must be economically justified. To determine the optimal price, consider the following factors:

Cost Price

The price must cover all direct and indirect costs associated with producing or acquiring the product. This ensures the company doesn’t operate at a loss and can sustain profitability.

Competitive Landscape

Analyzing competitors’ pricing helps to identify the price range within which the company can position its product. This ensures the price is competitive while still allowing for differentiation.

Consumer Expectations

The introductory price should reflect the elasticity of demand, meaning it should align with how sensitive customers are to price changes. Additionally, it must match the perceived value of the product, as customers’ willingness to pay is influenced by their perception of its worth.

Examples of Introductory Pricing

Companies often use penetration pricing and price skimming strategies when launching new products. Let’s explore a few real-life examples of how these strategies have been successfully implemented:

Uber

Uber uses a penetration strategy when entering new markets, offering reduced introductory prices. By setting fares at a minimum cost, Uber gets users accustomed to its service, displacing traditional taxis. After a few months, once the customer base is established, fares gradually increase. However, since customers have already formed a habit of using the service, they continue to rely on Uber, ensuring the company achieves the necessary level of profitability.

This strategy is particularly effective in highly competitive niches, where the goal is to eliminate competitors and rapidly capture market share. However, timing is key — the price increase must happen once customers are already loyal to the brand.

Netflix

Netflix initially employed a low introductory price to attract users right after launch. This allowed the platform to quickly secure early adopters, turning streaming movies and TV shows into a daily habit. Since then, Netflix has raised prices multiple times across key markets, yet subscribers continue to renew their subscriptions each month. For many viewers, the price increase is no longer a significant concern, as emotional attachment and habit have already taken root.

This strategy highlights the effectiveness of penetration pricing in building a long-term, loyal customer base in the early stages of market entry.

Sony

Sony applies a price skimming strategy for new PlayStation consoles. The company launches the product at a high price point, targeting early adopters and dedicated gamers who are willing to pay a premium to get the latest technology. Over time, the price gradually decreases, making it more accessible to a wider audience, including casual gamers.

This approach works well for products with a long lifecycle, like gaming consoles, where initial high prices help to maximize profit from loyal fans, and the gradual price reduction ensures that the product continues to attract new customers throughout its lifespan.

Key Mistakes When Forming an Introductory Price

The introductory price of a product impact not only sales but also the brand’s perception and market positioning. A misstep in setting the introductory price can undermine marketing efforts, harm the brand’s reputation, and lead to significant competitive challenges. Let’s explore some key mistakes to avoid when determining an introductory price.

1. Setting Too Low of a Price, Which Reduces the Perceived Value of the Brand

A low introductory price can seem like an attractive tactic, but it carries risks:

• Brand Perception: Consumers may associate the product with low quality, which damages the brand’s image and makes it harder to position as a premium offering in the future.
• Difficulty in Price Increases: If the product is initially perceived as a budget option, justifying future price hikes becomes challenging, as customers may resist paying more.
• Devaluing the Brand: Continually offering a low price may normalize budget pricing, and customers might become reluctant to pay a higher price later, even if the product’s value increases.

2. Lack of a Clear Strategy for Transitioning to the Main Price

A pricing strategy—whether low or high at the outset—is not a random decision; it requires careful planning and calculation. If a brand hasn’t thoroughly considered the timing, logic, and stages of transitioning to the main price, it risks facing declining sales.

For example, a sudden and sharp price increase can provoke a negative reaction from customers, especially if they are not prepared for it. Without clear communication about the price change, buyers may feel confused or even betrayed, leading them to turn to competitors.

Moreover, if the price increase occurs at an inopportune time, such as when competitors are running major promotions or offering better deals, it can result in a loss of customers to those alternatives.

3. Inconsistency with Marketing Activities

Marketing activities in e-commerce must align with the chosen pricing strategy to avoid confusion and ensure consistency. If advertising campaigns contradict the logic behind the product’s introductory price, it can create cognitive dissonance among consumers.

For example:

• If a product is marketed as revolutionary but offered at a low price, consumers may question its value and whether the product truly lives up to the hype.
• If the focus of the marketing campaign is on a unique pricing offer, but the product is priced similarly to competitors, the messaging loses credibility, and consumers may not perceive the price as special or worth the investment.

Consistency between pricing and marketing is essential to build trust and reinforce the perceived value of the product.

4. Ignoring Competitors, Leading to Incorrect Market Positioning

Setting an adequate introductory price without analyzing competitors’ pricing strategies can result in incorrect market positioning. Competitors’ prices act as key reference points and help shape decisions based on your goals, unique selling proposition (USP), positioning, and strategy. For example:

• A price that is too low may signal to consumers that the product is of inferior quality compared to competitors’ offerings.
• A price that is too high, without offering additional benefits, a clear USP, or perceived value, can make the product seem uncompetitive.
• Failing to track market changes and competitors’ pricing strategies can result in loss of market share, as consumers may choose alternatives that offer better value.

To ensure competitive pricing, tools like Pricer24 enable real-time tracking of competitors’ prices, allowing you to compare them with your own for specific products, brands, or categories. This data-driven approach helps you analyze price trends and quickly adjust your pricing strategy according to market conditions and set rules.

How to Set a Price for a New Product

Successfully launching a new product and achieving the desired revenue hinges on setting the right price. Follow this algorithm to ensure your pricing strategy works effectively.

1. Define Your Business Goals

The introductory price should align with your overarching business objectives. For example:

• Penetration Strategy: If your goal is to capture market share quickly, set a lower introductory price than competitors.
  
• Price Skimming Strategy: If your aim is to maximize early profits, opt for a higher price initially, targeting consumers who are willing to pay more.

2. Conduct Market Research

Thoroughly research the market to understand your competition and pricing landscape. Steps include:

• Analyzing competitors’ prices.
  
• Gauging consumer reactions to various price points.
  
• Assessing demand elasticity (i.e., how price changes will affect demand).

3. Run A/B Testing

A/B testing involves offering different price points to different segments of your audience to assess which generates the best financial outcomes. Metrics to analyze include:

• Conversion rates (CR)
  
• Average order value
  
• Customer behavior at different price levels These insights will guide you toward the optimal price that balances customer attraction and profitability.

4. Monitor Sales and Adjust Pricing as Needed

Once the product is launched, regularly track sales data. Based on this feedback, you can:

• Launch additional marketing efforts to boost sales.
  
• Adjust your pricing strategy to optimize revenue.
  
• Combine both tactics for more comprehensive results.

FAQ

Does the introductory price always have to be low?

Not necessarily. The price can be low or high depending on your strategy. For example, new e-commerce startups often use a penetration strategy with a low price to attract customers. In contrast, premium sectors such as technology, luxury cars, and jewelry typically use price skimming with a high introductory price.

How long should the introductory price be maintained?

The duration depends on your company’s objectives and the market conditions. In mass markets, the penetration strategy might involve maintaining the low introductory price for several months to build a customer base.

Does this strategy work for the luxury segment?

Yes, price skimming works well in luxury markets. Setting a high introductory price maintains exclusivity, attracts high-value customers, and creates a sense of belonging to an elite group, which makes it easier to later decrease the price for broader appeal.

How can I maintain profitability after the introductory price ends?

Carefully plan the transition from introductory to main price. A gradual price increase is typically perceived as smoother and more acceptable. If the price increase is sudden, it’s important to offer additional value and communicate the reasons for the change through marketing campaigns.