manufacturer of a new kind of fat-free ice cream that has the consistency and taste of regular ice cream is thinking of using a penetration pricing strategy for its new product.Which of the following conditions would argue against using a penetration pricing strategy for the tasty fat-free ice cream?
A) The ice cream market is highly elastic.
B) A large portion of the market has inelastic demand for ice cream-over a fairly broad range of prices.
C) Economies of scale in production would be substantial.
D) Retailers are not willing to pay for new brands of premium ice cream in the already overcrowded category.
E) Once the initial price is set, it is nearly impossible to lower the price without alienating early buyers.

Question

Quizplus · Accepted Answer

If a large portion of the market has inelastic demand for ice cream, it means that consumers are relatively insensitive to changes in price, and therefore a penetration pricing strategy may not be necessary. Inelastic demand suggests that consumers will likely continue to purchase the fat-free ice cream even if it is priced higher than regular ice cream, which would maximize the manufacturer's profits. The other options are not strong arguments against using a penetration pricing strategy.

Manufacturer of a New Kind of Fat-Free Ice Cream That