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PRICING STRATEGIES
sells in sufficient
quantities at this price, this strategy ensures a given level of profitability
and a good degree of predictability. It also ensures that products are not sold at below
cost – a strategy that is not sustainable in the long term without subsidy.
In practice,
costs should be seen as a floor below which prices should not be allowed to fall.
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Economic value to the customer (EVC): The value of the product to the customer over
its lifetime gives a ceiling above which prices would be unacceptable to customers. Doyle
and Stern (2006) explain how EVC can be calculated with an example from B2B market-
ing (see later in text).
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Competitor price levels: Also important to consider are the prices set by competitors.
Where two or more product offerings are similar
on other characteristics, price can
become the final determinant of choice. Firms may decide to price higher than competi-
tors (as a signal of superior quality), at similar prices (and compete on other features),
or lower prices (and compete primarily on price). In the UK market for petrol (gaso-
line), there is very little price differentiation between competitors.
This is in part due
to the high level of taxation (VAT and duty) on petrol, leaving little margin for price
differences.
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