The 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?

Question

Quizplus · Accepted Answer

If a large portion of the market has inelastic demand for ice cream over a fairly broad range of prices, then a penetration pricing strategy may not be effective. This is because such consumers are likely to continue buying their preferred brands even if a new, cheaper option is available. Inelastic demand means that price changes have a minimal effect on the quantity demanded, so the new product may not gain significant market share with a lower price. Therefore, other pricing strategies such as skimming or competitive pricing may be more appropriate.

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