Which pricing strategy involves setting low prices to gain entry into a new market; once the product or brand has established market share, prices can be raised?

Which pricing strategy involves setting low prices to gain entry into a new market; once the product or brand has established market share, prices can be raised?

• A. Dynamic pricing
• B. Price
• C. Predatory pricing
• D. Penetration pricing

Answer: (D)

Penetration pricing means deliberately setting low prices to win entry into a new market and quickly gain market share. The rationale is simple: a lower price lowers the barrier to trial, attracts price-sensitive customers, builds volume, and creates a barrier to competitors who might be discouraged by thin margins. Once the product or brand has secured a solid share and customer loyalty, the company can raise prices to improve margins while maintaining the advantages already gained from scale and brand presence. This approach contrasts with dynamic pricing, which changes prices based on demand, predatory pricing, which aims to undercut competitors to drive them out (and can be illegal), or the generic term “price,” which isn’t a strategy by itself.

Penetration pricing means deliberately setting low prices to win entry into a new market and quickly gain market share. The rationale is simple: a lower price lowers the barrier to trial, attracts price-sensitive customers, builds volume, and creates a barrier to competitors who might be discouraged by thin margins. Once the product or brand has secured a solid share and customer loyalty, the company can raise prices to improve margins while maintaining the advantages already gained from scale and brand presence. This approach contrasts with dynamic pricing, which changes prices based on demand, predatory pricing, which aims to undercut competitors to drive them out (and can be illegal), or the generic term “price,” which isn’t a strategy by itself.