Which pricing strategy involves setting low prices to gain entry into a new market, then raising them as market share grows?

Which pricing strategy involves setting low prices to gain entry into a new market, then raising them as market share grows?

• A. Penetration pricing
• B. Price skimming
• C. Cost-plus pricing
• D. Psychological pricing

Answer: (A)

Penetration pricing is about entering a new market with a deliberately low price to attract a large number of customers quickly and win market share. The idea is to build volume, achieve economies of scale, and deter competitors; once the business has a strong position, prices can be raised as costs are covered and the customer base is established. This directly describes starting with low prices and increasing them as market share grows. Price skimming, by contrast, starts with a high price to skim early adopters and then lowers it over time, so it’s not the approach described. Cost-plus pricing bases price on cost plus a markup, not on market-entry strategy. Psychological pricing uses pricing cues to influence perceptions, not specifically to gain market share through low entry prices.

Penetration pricing is about entering a new market with a deliberately low price to attract a large number of customers quickly and win market share. The idea is to build volume, achieve economies of scale, and deter competitors; once the business has a strong position, prices can be raised as costs are covered and the customer base is established. This directly describes starting with low prices and increasing them as market share grows.

Price skimming, by contrast, starts with a high price to skim early adopters and then lowers it over time, so it’s not the approach described. Cost-plus pricing bases price on cost plus a markup, not on market-entry strategy. Psychological pricing uses pricing cues to influence perceptions, not specifically to gain market share through low entry prices.