Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is penetration pricing?

1. Setting a low initial price to attract mass market

2. Overall pricing strategy for luxury goods

3. Lowering prices after a product's launch

4. Increasing prices gradually over time

The correct answer is: Setting a low initial price to attract mass market

Penetration pricing is a strategy where a company sets a low initial price for a new product in order to attract a large number of customers quickly and gain market share. This approach is particularly effective in competitive markets, as it encourages consumers to try the new product due to its affordability, facilitating rapid acceptance and adoption. By drawing in customers with a low price point, the company hopes to establish a strong presence in the market and later possibly adjust prices once a loyal customer base is built. In terms of market strategy, penetration pricing is often used for products intended for mass markets, where reaching a wide audience is essential for success. This tactic contrasts with strategies applicable to luxury goods, where higher prices are often associated with exclusivity and perceived value, thereby making the other options less relevant in the context of penetration pricing.