DECA Sports and Entertainment Marketing Practice Exam

What is the penetration price strategy?

1. A strategy to set low prices to gain market share quickly

2. A method to increase prices gradually over time

3. A pricing strategy that uses premium pricing from the start

4. A technique to discount prices below cost

The correct answer is: A strategy to set low prices to gain market share quickly

The penetration price strategy is designed to establish a foothold in the market by setting prices lower than competitors, with the intent of attracting a large number of customers quickly. This approach is particularly effective for entering a new market, where building a customer base is crucial. By offering lower prices, businesses can encourage trial and adoption of their products or services, which can lead to increased brand recognition and loyalty. Once market share is gained, companies may then adjust their pricing strategies, increasing prices as they build a solid customer base and their brand's perceived value rises. This model relies on the idea that initial losses from lower pricing will be compensated by long-term growth and customer retention. Therefore, this strategy is primarily focused on rapid market entry and growth rather than immediate profit maximization. The other options represent different pricing strategies that do not align with the core principles of penetration pricing, such as gradually increasing prices, using premium pricing from the start, or discounting below cost, which diverges from the goal of sustaining a profitable business model while attracting customers.