A penetration pricing policy is most likely to be effective when (1) many segments of the market are price-sensitive; (2) a low initial price discourages competitors from entering the market; and (3) _________.

Question

Quizplus · Accepted Answer

A penetration pricing policy is most effective when unit production and marketing costs fall dramatically as production volumes increase. This is because the strategy relies on selling a large volume of products at a low initial price to achieve economies of scale, which lower the unit cost over time. This makes it easier to attract price-sensitive consumers who are more likely to switch to a new product if the price is significantly lower than competitors. Additionally, if the low initial price discourages competitors from entering the market, the company can continue to maintain a competitive advantage as production volumes increase and unit costs decrease.

A Penetration Pricing Policy Is Most Likely to Be Effective