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The Pricing Journey | Stanford University Press

The Pricing Journey The Organizational Transformation Toward Pricing Excellence STEPHAN M. LIOZU

In Economics 101, we learn that prices move quickly in response to supply and demand. Pricing researchers, however, know better. With some exceptions, pricing is almost never that fluid. Most prices tend to be sticky, in ways that often work against the seller (Bergen et al. 2003). More perplexing still, pricing structures can persist in a market for decades even when it is clear that they hurt both buyers and sellers.

Three examples illustrate this fact. The first concerns gasoline prices on European motorways. On-highway gasoline is more expensive than gasoline on smaller roads because petrol companies bid and pay for the right to operate stations on highways. Given their own higher operating costs, these companies sell petrol on highways at a 5 to 8 percent premium. Many customers have become aware of this discrepancy. As a result, some petrol stations have seen their sales volume drop by 80 to 90 percent over the last few years, although traffic volume has risen in many places. Reliably high motorway prices have taught customers to fill the tanks of their fuel-efficient cars before long trips and to avoid on-highway petrol stations. In this situation, the only rational pricing strategy would be to set prices to match off-highway levels and capture profits through the sale of other items (snacks, coffee, etc.). But this is not what we see. Prices stay high, and rather than change their pricing structure and recapture their market share, many service station operators on the highway are considering shutting down.

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The Pricing Journey | Stanford University Press.

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