Which of the following best describes penetration pricing?

Penetration pricing is a strategy where a company sets lower initial prices for its products or services to attract a larger number of customers quickly. This approach is particularly effective in markets where the objective is to gain market share and encourage potential buyers to try a new offering. By lowering prices initially, the business creates an incentive for customers to make a purchase, reducing any immediate hesitation they might have concerning the product's value or utility.

Once a significant customer base is established, the company may gradually raise prices as the product becomes more established in the market or as it shifts toward maximization of profit margins. This strategy is often used by new entrants in a market or when launching a new product that faces stiff competition. It aims to build brand loyalty and customer satisfaction, increasing the likelihood of repeat purchases in the future.

The other options presented do not encapsulate the essence of penetration pricing, as they refer to different pricing strategies that do not emphasize attracting customers through initial price reductions.