Penetrating pricing strategy is appropriate when
price elasticity of demand in the market is highly elastic.
Penetration pricing sets a low introductory price to win a large share of the market quickly, build volume and discourage new entrants; the price may be raised once the product is established.
It suits markets where demand is highly price elastic: a low price brings a more than proportionate rise in quantity demanded, so sales and market share grow, and the large volume brings economies of scale that cut unit costs.
Where demand is highly inelastic, a low price gives up revenue without adding much volume; such markets suit skimming pricing, which starts with a high price. Uncertain elasticity gives no basis for choosing a low-price strategy, and negative income elasticity describes inferior goods, a response to income rather than price.
Hence, price elasticity of demand in the market is highly elastic.
Similar Questions
The pricing strategy which adjusts the basic price to accommodate differences in customers, products and locations is called :
Which one of the following is a false statement ?
Match the items of List-I with the items of List-II :
List-I List-II (a) Law of diminishing marginal utility (i) Cross demand (b) Relationship between price of one commodity and demand for other commodity (ii) Oligopoly (c) Skimming the cream policy (iii) Cardinal approach (d) Price rigidity (iv) Pioneer pricing Codes :
(a) (b) (c) (d)
Firms producing and selling a large variety of goods will generally follow :
Cost-plus pricing is considered appropriate for :
I. Product Tailoring
II. Public Utility Pricing
III. Refusal Pricing
IV. Monopoly Pricing
Codes :
Assertion (A) : Differential pricing structure is designed to accommodate the various categories of buyers.
Reason (R) : It aims at increasing sales and revenues and driving the competitors out from the market.
Codes :
Match the items of List-I with the items of List-II.
List – I List – II (a) A market having high price elasticity. I. Skimming pricing (b) A market having high price inelasticity II. Differential pricing (c) A market having several segments differing prominently with regard to price elasticities of their demand. III. Penetrating pricing Codes :
I II III
“Buyers are less price sensitive when they cannot easily compare the quality substitutes”.
Which of the following factors of price sensitivity is reflected from this statement ?
When electronic markets permit prices to change faster even daily as a function of demand and supply then this practice is called :
Match the items of the List - I with those of the List - II and indicate the correct code :
List - I List - II (a) Trade Channel Discount (i) Oligopoly Pricing (b) Loss Leadership (ii) Locational Price Differentials (c) Pricing being non - responsive to changes in the demand and the cost (iii) Differential Pricing (d) Basing Point Pricing (iv) Product - Line Pricing Codes :
(a) (b) (c) (d)
Important Questions from Pricing Strategies
Indicate the correct code for the points taken into consideration for product line pricing from the following:
(i) Demand relationships of different products
(ii) Competitive situation in the product market
(iii) Advertising endeavours for different products
(iv) Cost estimates for various products
Choose the correct answer from the code given below:
In pricing one new emerging model is Outcome Based Pricing Model. When pricing is done for the IT industry., which of these will represent Outcome Based Pricing?
In principle, all goods and services are valued at _______, that is, inclusive of all taxes.
- Which one of the following statements does not support the concept of third degree price discrimination?
- _______ takes into account a host of inputs, such as buyer's image of the product performance, the channel deliverables, the warranty quality, customer support and softer attributes such as the suppliers reputation, trust worthiness and esteem.
