Penetration pricing sacrifices short-term margin to rapidly acquire customers and establish market position. It is effective when network effects, switching costs, or economies of scale make market share more valuable than early profitability.

Example: A new SaaS entrant prices its product at $19/month when competitors charge $79/month. After building a base of 5,000 customers over 18 months, it gradually raises pricing while introducing premium tiers, retaining most customers through established habits and integrations.