Which pricing method is used to start with a low price to gain market share, with potential price increases later?

Which pricing method is used to start with a low price to gain market share, with potential price increases later?

• A. Skimming
• B. Penetration pricing
• C. Psychological pricing
• D. Premium pricing

Answer: (B)

Penetration pricing is a strategy that starts with a low price to attract a large number of customers quickly and win market share. The appeal is clear: a low price makes the product attractive to price-sensitive buyers and can deter potential competitors by establishing a large customer base early. Once the business has built volume and efficiencies, it may raise prices or introduce higher-value options, but the initial low price is what drives rapid market penetration. This approach contrasts with other strategies. Skimming pricing begins with a high price to maximize margins from early adopters, not to gain broad market share. Psychological pricing uses pricing tricks to influence perceptions, rather than aiming to quickly expand sales volume. Premium pricing sets a high price to signal quality, focusing on a smaller, high-value segment rather than broad market penetration.

Penetration pricing is a strategy that starts with a low price to attract a large number of customers quickly and win market share. The appeal is clear: a low price makes the product attractive to price-sensitive buyers and can deter potential competitors by establishing a large customer base early. Once the business has built volume and efficiencies, it may raise prices or introduce higher-value options, but the initial low price is what drives rapid market penetration.

This approach contrasts with other strategies. Skimming pricing begins with a high price to maximize margins from early adopters, not to gain broad market share. Psychological pricing uses pricing tricks to influence perceptions, rather than aiming to quickly expand sales volume. Premium pricing sets a high price to signal quality, focusing on a smaller, high-value segment rather than broad market penetration.