What is penetration pricing?
A.
Having to slowly lower prices until the point is reached where a company is forced to shut down due to lack of profit
B.
Refusing to lower prices, which leads to a company not being able to penetrate into the market
C.
Raising prices to the highest possible point where a company can still earn a profit
D.
Setting prices low in an attempt to gain increased market share
D.
Setting prices low in an attempt to gain increased market share
The correct answer is D. Penetration pricing is a pricing strategy where a company initially sets its prices low in order to gain a larger market share. This strategy aims to attract customers and encourage them to switch from competitors by offering lower prices. The objective is to establish a strong presence in the market and eventually increase prices once the desired market share is achieved.
The correct answer is D. Setting prices low in an attempt to gain increased market share.
To understand penetration pricing, let's break it down:
Penetration pricing is a strategy that companies use when entering a new market or launching a new product. The goal is to attract customers and increase market share by offering products at lower prices than competitors.
By setting prices low, companies aim to "penetrate" or enter the market more easily, enticing customers to try their product because of the lower price compared to existing alternatives. The idea is that once customers try the product and are satisfied with its quality and value, they will become loyal customers who will continue to purchase at regular prices in the future.
Penetration pricing is commonly used in industries with high competition, such as technology and electronics, where market share and customer loyalty are crucial. It helps companies gain visibility, establish brand recognition, and differentiate themselves from competitors.
The other answer choices are incorrect:
A. Having to slowly lower prices until the point is reached where a company is forced to shut down due to lack of profit: This describes a situation of loss or bankruptcy caused by constantly decreasing prices, which is not what penetration pricing intends to achieve.
B. Refusing to lower prices, which leads to a company not being able to penetrate into the market: This choice describes a scenario where a company fails to adjust its prices to be competitive, which is the opposite of the strategy of penetration pricing.
C. Raising prices to the highest possible point where a company can still earn a profit: This option describes a strategy of maximizing prices and profit, which is not the objective of penetration pricing.