Which pricing strategy focuses on setting prices lower than competitors?

The pricing strategy that focuses on setting prices lower than competitors is Penetration Pricing. This approach is utilized primarily to attract customers and gain market share by offering lower prices at the outset. The idea is to entice new customers away from competitors, making the product or service more appealing due to its lower cost. Once a sufficient level of market penetration is achieved and customer loyalty is established, companies might gradually increase prices.

Penetration pricing is particularly effective when entering a competitive market, as it encourages initial sales volume and helps establish brand recognition. By undercutting competitors, a business can create a strong initial customer base, which is critical for long-term success.

In contrast, the other pricing strategies do not emphasize setting prices below competitors in the same manner. Value-Based Pricing focuses on the perceived value of the product or service from the customer's perspective rather than competing on price alone. Cost-Plus Pricing involves setting prices based on the production costs plus a markup, which does not inherently consider competitors' pricing strategies. Price Skimming, on the other hand, involves setting high initial prices for new products and gradually lowering them over time, which is the opposite of what Penetration Pricing aims to achieve.