What pricing strategy is used when a product is introduced at a lower price compared to competitors?

The chosen answer, Penetration Pricing, refers to a strategy where a new product is launched at a price lower than that of competitors. This approach aims to attract customers quickly and gain market share by making the product more appealing through affordability. By setting a lower price initially, companies hope to entice consumers to try their product, thus increasing brand awareness and potentially building a loyal customer base.

This strategy is particularly effective in markets that are price-sensitive, where consumers might be more inclined to switch brands if they perceive one option as offering greater value. As the product gains popularity and market share, companies may eventually increase the price to enhance profitability while maintaining customer loyalty.

The other options represent different pricing strategies. Price Skimming involves setting a high price initially and gradually lowering it over time, often used for innovative or premium products. Price Penetration is similar to penetration pricing but might imply a more aggressive approach in capturing a larger market quickly. Market Pricing typically refers to setting prices based on market conditions or competition rather than a specific strategic approach. Understanding these distinctions helps clarify why Penetration Pricing is the suitable answer for this question.