What is the purpose of a penetration pricing strategy?

A penetration pricing strategy aims to set an initial low price for a product to rapidly attract customers and increase market share. By offering a product at a lower price point compared to competitors, a company can entice price-sensitive consumers, draw in a larger customer base, and discourage potential rivals from entering the market. This strategy is particularly effective in markets where consumers are highly price-sensitive or in cases where the company intends to establish brand loyalty quickly.

Once the market share is captured, companies may gradually increase prices as the product gains acceptance and becomes more established in consumers' minds. This approach helps businesses create a strong foothold in competitive markets and can lead to economies of scale as production increases over time.

The other options do not align with the core purpose of penetration pricing. For example, establishing a high market price for luxury products focuses on prestige rather than market share growth, while maintaining stable pricing across all products does not involve the initial price drop intended by penetration pricing. Pricing based on consumer demand aligns more with dynamic or value-based pricing strategies rather than the aggressive market entry focus of penetration pricing.