Which pricing strategy would a firm use to enter a market by setting a relatively low price compared to rivals?

Which pricing strategy would a firm use to enter a market by setting a relatively low price compared to rivals?

• A. Skimming/Creaming
• B. Penetration Pricing
• C. Competitive Pricing
• D. Extension Strategies

Answer: (B)

Penetration pricing is about entering a market by setting a relatively low price compared with rivals to attract customers quickly and gain market share. The idea is that a low price lowers barriers to trying the product, drives high sales volume, and can deter competitors from entering or expanding because the market becomes price-sensitive and less profitable for new entrants. In the short term, profits may be sacrificed, but economies of scale as sales grow can improve overall profitability, and the low price can be sustained if the business can keep costs down. This differs from skimming, which starts with a high price to target early adopters and recoup costs; competitive pricing aims to match competitors’ prices rather than undercut them; and extension strategies relate to extending a product’s life or market presence, not specifically about using a low entry price.

Penetration pricing is about entering a market by setting a relatively low price compared with rivals to attract customers quickly and gain market share. The idea is that a low price lowers barriers to trying the product, drives high sales volume, and can deter competitors from entering or expanding because the market becomes price-sensitive and less profitable for new entrants. In the short term, profits may be sacrificed, but economies of scale as sales grow can improve overall profitability, and the low price can be sustained if the business can keep costs down.

This differs from skimming, which starts with a high price to target early adopters and recoup costs; competitive pricing aims to match competitors’ prices rather than undercut them; and extension strategies relate to extending a product’s life or market presence, not specifically about using a low entry price.