What pricing tactics should be used when the market is in the introduction phase?

Competing in an emerging market with inexperienced customers and limited competition is not the same as competing in a saturated market where growth means taking sales from competitors. Most markets go through four phases: introduction, growth, maturity, and decline.

Market behavior in its early stages
Everything begins with an innovation. Once the product is launched, sales grow slowly while investments exceed revenues. In this introduction phase, operating cash flow is usually negative.

When around 5% of the potential market adopts the new product, sales accelerate and the growth phase begins—the most profitable stage. Later, the market stabilizes, competition intensifies, and profits decrease, marking the maturity phase. Finally, the product is replaced by more efficient ones and enters decline.

The challenge of educating the customer in the introduction phase
During the introduction phase, the main objective is to educate the customer. The market does not yet know the innovation or understand the value it offers. Often, consumers are not even aware that they have the need the product solves.

To educate the customer, four tactics can be used depending on the level of required outlay and how evident the benefit is after the first use: sampling, demonstration, direct sales, and the use of distribution channels.

Sampling: ideal for low-cost products with evident benefits
When the benefit is clear from the first use and the outlay is low, sampling is an effective tactic. It is useful for introducing repeat-consumption products or services in mass or industrial markets. Freemium models from services like Spotify are an example.

However, it is not recommended for durable or expensive products, such as smartphones, where giving units away is not viable.

Demonstrations: when trying does not imply buying
When the product requires a high outlay but its benefits can be easily demonstrated, the right tactic is the demonstration. A classic example is the showrooms of satellite TV services like DirecTV, where customers could experience the service before subscribing.

Direct sales force: key for complex and costly products
In industrial markets, where benefits are not always evident when testing the product and the outlay is high, it is necessary to have a direct sales force. It should focus on presenting the total economic value of the solution.

For example, services like Microsoft Azure require a consultative sale, which is why Microsoft has a robust enterprise sales team in many countries.

Distribution channels: effective for low-outlay products
When products are low value, using a direct sales force is not profitable. In these cases, distribution channels allow companies to reach consumers efficiently and educate them about the product’s value.

Manufacturers like HP, which serve both corporate and mass markets, combine direct enterprise sales forces with mass distribution channels for end consumers.

In practice, many companies combine these tactics to serve different market segments and maximize their educational reach during the introduction phase.