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IAI Actuarial Core Principles · Business Economics · Pricing strategies in the financial services sector

A new Indian digital lender launches personal loans at an interest rate well below the market rate, accepting initial losses, in order to build a large customer base quickly and raise rates later once customers are retained. Which strategy best describes this?

This is penetration pricing. The lender deliberately sets a low initial rate, accepting early losses, to win market share fast and build a retained customer base, planning to raise prices later. Skimming would involve a high launch price instead.

  1. APrice skimming
  2. BPenetration pricingCorrect
  3. CLoss-leader pricing on a complementary product
  4. DCost-plus pricing
  5. Collusive price leadership

Explanation

Charging a low initial price to gain market share quickly, with the intention of raising it later, is penetration pricing. Skimming does the opposite (high initial price). A loss leader is a discounted product intended to sell other products, which is not the stated aim here.

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