Final answer:
Penetration pricing is most favorable when there are few competitors, high barriers to competitor entry, and when the market doesn't strongly associate price with quality. It is less effective when there are many substitutes or quality-sensitive customers.
Step-by-step explanation:
A favorable condition for implementing penetration pricing is having few competitors. This strategy involves setting the price of a new product or service significantly lower than its competitors to attract customers and build market share quickly.
It is especially valuable when there's a high sustainable advantage, such as a high barrier to competitor entry or when existing competitors are not known for aggressively slashing prices in response to new entries. Penetration pricing is less effective in markets with quality-sensitive customers who perceive low prices as low quality, or when there are many substitutes available, indicating that the product's demand curve is highly elastic.