Question

Which of the following is the primary objective of penetration pricing?

A) to increase price in order to reduce volumes

B) to increase product differentiation

C) to gain higher margins by reducing market share

D) to build sales volume in a market

E) to increase profit by increasing prices

Answer 1

The primary objective of penetration pricing is to build sales volume in a market by setting a low initial price to attract a substantial customer base and quickly gain market share. Option c

Step-by-step explanation:

The primary objective of penetration pricing is to build sales volume in a market by setting a low initial price to attract customers. This strategy aims to gain market share quickly by encouraging a large number of consumers to try the product.

Penetration pricing is often used when launching a new product in a competitive market, as the low price can help to establish a customer base and discourage competitors from entering the market.

Penetration pricing does not aim to increase product differentiation, raise prices for higher margins, or reduce volumes intentionally.

In the context of price elasticity of demand, a company with a product that has elastic demand could use penetration pricing effectively, as the lower price may lead to a proportionally larger increase in sales volume, potentially increasing total revenue over time. Option c