Question
Which of the following are benefits of a penetration pricing strategy?
Multiple select question.
Gaining market share
Decreasing production costs as volume increases
Discouraging competitors
Adding perceptions of quality
Multiple select question.
Gaining market share
Decreasing production costs as volume increases
Discouraging competitors
Adding perceptions of quality
Answers
GPT-4o mini
Penetration pricing strategy has several benefits. From your list, the following options are typically associated with a penetration pricing strategy:
1. **Gaining market share** - By setting a low initial price, companies can attract more customers quickly, increasing their market share.
2. **Discouraging competitors** - Low prices can deter new entrants or competitors from entering the market, as they may find it difficult to compete with the established low prices.
3. **Decreasing production costs as volume increases** - With higher sales volume resulting from the low pricing strategy, companies may achieve economies of scale, which can reduce per-unit production costs.
However, "Adding perceptions of quality" is generally not a benefit of penetration pricing. Typically, low prices can sometimes lead consumers to perceive a product as lower quality.
Therefore, the correct answers are:
- Gaining market share
- Decreasing production costs as volume increases
- Discouraging competitors
1. **Gaining market share** - By setting a low initial price, companies can attract more customers quickly, increasing their market share.
2. **Discouraging competitors** - Low prices can deter new entrants or competitors from entering the market, as they may find it difficult to compete with the established low prices.
3. **Decreasing production costs as volume increases** - With higher sales volume resulting from the low pricing strategy, companies may achieve economies of scale, which can reduce per-unit production costs.
However, "Adding perceptions of quality" is generally not a benefit of penetration pricing. Typically, low prices can sometimes lead consumers to perceive a product as lower quality.
Therefore, the correct answers are:
- Gaining market share
- Decreasing production costs as volume increases
- Discouraging competitors