ACCA Applied Skills · Performance Management · Pricing decisions
Which of the following market conditions would normally make a company more able to charge a premium price for its product?
A highly differentiated product with strong brand loyalty makes demand less price sensitive, because customers see few acceptable substitutes. This allows the company to charge a premium price, unlike situations with many substitutes, low switching costs or easy market entry.
- AMany close substitutes are available to customers
- BCustomers have low switching costs
- CThe product is highly differentiated and has strong brand loyaltyCorrect
- DCompetitors are able to enter the market easily
Explanation
Differentiation and brand loyalty make demand less elastic, so customers will accept higher prices. Close substitutes, low switching costs and easy entry all increase competition and make demand more price sensitive, reducing pricing power.
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