Which of the following is a drawback of a market penetration pricing strategy?

• A. Setting the price lower than the item's value leaves money on the table
• B. Setting low prices may indicate to consumers that the product is not of high quality
• C. Requires enormous marketing expense
• D. Costs are higher than perceived value

Answer: (A)

Market penetration pricing is about setting a low price to win a large share of the market quickly. The big drawback is that by pricing below what customers would be willing to pay, you’re leaving money on the table—you’re sacrificing higher margins that the product could command if priced closer to its perceived value. The strategy relies on volume to make up for the lower per-unit profit, but if demand doesn’t grow enough or costs rise, the reduced margins can hurt overall profitability.

You might hear a concern that very low prices could signal low quality, but the primary risk described here is not capturing the full value customers assign to the product. The other options don’t capture this fundamental trade-off between low price, high volume, and potentially foregoing higher profits.