A market-penetration pricing strategy is most suitable when:

• A. the product is highly differentiated and faces little competition
• B. the firm wants to maximize short-term profits rather than market share
• C. the market is saturated and demand is inelastic
• D. the market is highly price sensitive and low prices will attract a large number of buyers

Answer: (D)

Verified step by step guidance

1. Understand the concept of market-penetration pricing: it is a strategy where a firm sets a low initial price to quickly attract customers and gain market share.
2. Analyze the conditions under which market-penetration pricing is effective: it works best when the market is highly price sensitive, meaning consumers respond strongly to price changes.
3. Recognize that if the product is highly differentiated and faces little competition, a firm might use a different pricing strategy, such as price skimming, rather than penetration pricing.
4. Note that maximizing short-term profits rather than market share is not aligned with penetration pricing, which focuses on long-term market share growth through low prices.
5. Conclude that the correct scenario for market-penetration pricing is when the market is highly price sensitive and low prices will attract a large number of buyers, leading to rapid market share expansion.