Association of Chartered Certified Accountants (ACCA) Certification Practice Test

In which pricing strategy are consumers attracted by the initial low price?

1. Price skimming

2. Value-based pricing

3. Penetration pricing

4. Cost-plus pricing

The correct answer is: Penetration pricing

Penetration pricing is a strategy where businesses set an initial low price to attract consumers and gain market share quickly. This approach is particularly effective in competitive markets where the goal is to encourage customers to try a new product or service. By entering the market with a low price, companies aim to entice price-sensitive consumers, creating a larger customer base that can later lead to increased sales volume. This strategy can serve to establish a foothold in the market and build brand awareness. Once market penetration is achieved and a loyal customer base has been developed, the company may gradually increase prices without losing too many customers. Penetration pricing is often used for new products or when a business is trying to fend off competitors entering the same market.