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CMA Final · Strategic Cost Management · Pricing Decisions and Strategies

Vistara Electronics Ltd. is launching a new gadget with a market penetration strategy. Which pricing approach is consistent with this strategy?

A low initial price to gain rapid market share is consistent with penetration pricing. The firm accepts thin early margins to build volume and deter competitors, unlike skimming, which charges a high initial price to early adopters before gradually reducing it.

  1. ASet a low initial price to gain rapid market share and discourage competitorsCorrect
  2. BSet a high initial price to skim early adopters before lowering it
  3. CPrice at exactly the competitor's price only after the product matures
  4. DPrice to recover the full development cost in the first year

Explanation

Penetration pricing sets a low initial price to build volume and market share quickly, often exploiting economies of scale. Skimming is the opposite approach, charging a high initial price to early adopters.

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