Which pricing strategy involves initially offering a low price to build market share and then increasing it as demand rises?

The pricing strategy that involves initially offering a low price to attract customers and build market share is known as penetration pricing. This approach is particularly effective in competitive markets where businesses aim to quickly gain a foothold by offering products or services at lower prices than existing competitors. By doing so, a company can entice a larger customer base to try their offerings.

Once the company has established a solid market presence and customer loyalty, it can gradually increase prices as demand for its product or service rises. This strategy helps in quickly achieving economies of scale and making the product known in the market.

In contrast, skimming pricing typically starts with a high price to generate maximum revenue from early adopters before gradually lowering it. Premium pricing maintains high prices to convey quality and exclusivity, while competitive pricing sets prices based on competitor pricing, without the specific initial low price that penetration pricing emphasizes. Thus, penetration pricing is distinct in its focus on low initial pricing to foster market share growth.