By students, for students.

Pricing strategy in B2B markets: competition (3/3)

In Management on April 16, 2013 at 3:43 pm

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Competition

Exclusivity is an element of value. Businesses without competition enjoy markets with inelastic demand conditions and can price accordingly.

Industrial component manufacturer, Parker Hannifin was able to transform its fortunes by establishing five categories of products, priced according to value. These included A items which were bought at high quantities in competitive markets and B items which were differentiated to add value. At the other end of the scale, items which were exclusively sold by Parker in the E category commanded high prices.

One of the most extreme effects of competition on price can be in price wars where firms repeatedly cut their prices in an attempt to win market share. Oftentimes, this is unsustainable and is only advisable if your business is starting from a position with a substantial cost advantage or if market share growth is clearly prioritised regardless of profitability concerns.

Conclusion

Price strategies offer tempting routes to competitive advantage. Not only does pricing clearly affect the profitability of sales, but it its easier and quicker to change than other areas of the marketing mix. However, pricing alterations should be adopted to achieve long term growth, not as a short term fix. This involves considering market conditions, including demand, product and competitive factors. Just as the customer considers the value of their purchase, so should business leaders evaluate pricing options. Costs must be justified by the benefits received in return.

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