CMA Final · Strategic Cost Management · Pricing Decisions and Strategies
Lakshmi Foods launches a new snack and sets a low initial price to win large market share quickly, expecting cost reductions through volume and to deter competitors. Which pricing strategy is this?
This is penetration pricing. A low initial price is used to capture market share quickly, build volume, lower unit costs through scale and discourage new entrants. It is the opposite of price skimming, which charges high initial prices to early buyers.
- APrice skimming
- BPenetration pricingCorrect
- CPredatory pricing based on dumping
- DPremium pricing
Explanation
Penetration pricing sets a low entry price to gain share rapidly and benefit from economies of scale. Skimming is the opposite, with a high initial price for early adopters. Predatory pricing aims at eliminating rivals through losses, not building share with scale-driven cost reduction.
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