Which pricing strategy involves setting a price lower than competitors to capture market share?

Penetration pricing is a strategy where a business sets its price lower than competitors in order to attract customers and gain market share quickly. By introducing a product at a lower price point, the company can entice consumers who may be hesitant to try a new or unfamiliar product. This strategy is particularly effective in markets where there is strong competition, as it allows a new entrant or an existing business looking to launch a new product to gain traction.

When successfully implemented, penetration pricing can lead to increased customer loyalty and long-term profitability as the business establishes itself in the market. Over time, once a firm has captured a significant portion of the market and built a customer base, it may then gradually increase its prices while retaining these customers.

Other pricing strategies serve different purposes and do not focus on capturing immediate market share through lower prices. Premium pricing aims to position a product as high-end or luxury by setting the price higher than competitors, which doesn't align with the intent of gaining market share through low pricing. Price skimming involves setting a high initial price and gradually lowering it, which is opposite to the model of penetration pricing. Cost-plus pricing determines prices based on production costs plus a markup, which may not necessarily consider competitor pricing or market share objectives.