A penetration pricing policy is MOST LIKELY to be effective when
A)unit production and marketing costs fall dramatically as production volumes increase.
B)enough prospective customers are willing to buy immediately at the high initial price to make these sales profitable.
C)lowering the price has only a minor effect on increasing the sales volume and reducing the unit cost.
D)the high initial price will not attract competitors.
E)customers interpret the high price as signifying high quality.

Question

Quizplus · Accepted Answer

A penetration pricing policy involves setting a low initial price to attract a large number of customers, with the aim of increasing market share and eventually raising the price. This strategy is most effective when unit production and marketing costs fall dramatically as production volumes increase, allowing the company to maintain profitability despite the low price. This is because the cost savings from increased production volumes can offset the lower profit margins from the lower prices.

A Penetration Pricing Policy Is MOST LIKELY to Be Effective