The correct answer is D. Product to have very low cross-elasticity of demand.
Penetration pricing is a pricing strategy where a company sets a low price for a new product in order to attract a large number of customers and gain a significant market share. This strategy is often used when a company is introducing a new product into a market that is already dominated by established competitors.
In order for penetration pricing to be successful, the product must have a high degree of elasticity. This means that the demand for the product must be sensitive to changes in price. If the demand for the product is inelastic, then a decrease in price will not lead to a significant increase in demand.
The cross-elasticity of demand measures the responsiveness of the demand for one product to changes in the price of another product. If the cross-elasticity of demand is high, then the two products are substitutes. This means that if the price of one product decreases, consumers will switch to that product from the other product.
For penetration pricing to be successful, the product must not have close substitutes. If the product has close substitutes, then a decrease in price will lead to consumers switching to the substitutes. This will reduce the demand for the product and make it difficult for the company to gain market share.
Therefore, the correct answer is D. Product to have very low cross-elasticity of demand.
Here is a brief explanation of each option:
- A. Short-run demand for the product to have elasticity greater than unity. This is desirable for penetration pricing because it means that the demand for the product is sensitive to changes in price. A decrease in price will lead to a significant increase in demand, which will help the company to gain market share.
- B. Availability of economies of large scale production. This is desirable for penetration pricing because it means that the company can produce the product at a low cost. This will allow the company to offer a low price to consumers, which will help the company to gain market share.
- C. Easy acceptance and adoption of the product by the consumers. This is desirable for penetration pricing because it means that consumers will be willing to switch to the product. This will help the company to gain market share.
- D. Product to have very low cross-elasticity of demand. This is not desirable for penetration pricing because it means that the product has close substitutes. If the price of the product decreases, consumers will switch to the substitutes. This will reduce the demand for the product and make it difficult for the company to gain market share.