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What is Pricing?
“The single most important decision in evaluating a business is pricing power. If you’ve got the
power to raise prices without losing business to a competitor, you’ve got a very good business. And
if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible
business.” – Warren Buffet.

Pricing means different to different people. For the sake for simplification categorise into two groups
of people – Brand conscious and Price Sensitive. The value received from pricing means different to
each group. Pricing is also looked at from the company perspective – here the cost + profit is added
into the price of the product.
When companies reduce price of product, the product’s value increases and vice-verse. In this case
the company is either reducing the profit margin or increasing the profit margin. Therefore, the price
of the product directly impacts the value a customer gets from the product – whether that be
functional, hedonic, symbolic or cost-saving.
E.g. the actual price for Tim-tams in coles is $2.50 and if a consumer is on a diet the value Tim-tams
have on the customer is low, however if the price drops by 50% the consumer is more likely to
purchase it either for immediate consumption or future use.
Customer Perspective Pricing:
 Benefits for Functional Product: Core product + augmented product. E.g. Flight tickets: Core
product – travel, Augmented Product – meal, entertainment. Prices will vary based on the
augmented product – more leg room will cost more.
 Benefits for Symbolic product: Core product + recognition, confidence, and reliability.
Companies needs to understand to be able to price their products better.
Company Perspective Pricing:
 Cost + Profit
Pros and Cons
 Discounting price pros – increased value, can make consumer try your product, and can
convert consumer to your product.
 Discounting price cons – might affect the evaluation of the product – close to expiry, defect.
 High price pros – companies make more profit, more margin, change the image of the brand
– more reputable.
 High price cons – may reduce market share, might lead to substitution, customer may perceive
low value.

Economics of Pricing

The invisible hand – Adam Smith 1759,

Equilibrium is when supply and demand for a product are equal.

Price elasticity: the responsiveness of the quantity demand and supply in relation to price.
Low price elasticity a.k.a Inelastic Demand – when price changes make a small difference in the
demand. E.g. daily consumer goods – milk, eggs, bread, seasonal products – mangoes.

High price elasticity – small changes in price will result in large changes in the quanty demanded. E.g.
real estate, clothing, luxury goods.

What can influence elasticity?

 Substitution: High price elasticity. E.g. real estate – multiple options in the housing – condos,
townhouse, apartment; clothing – charity shops, second hand shops.
 Scarcity: Developing nations – Clean drinking water, oil. In Cuba, when they opened up for
tourism, due to the high influx of tourism the country ran out of beer.
 Little Competition: few brands do what is best.
 Who is paying? If the financially capacity of the person purchasing the product is high the user
has inelastic demand. Consumers have different levels of price elasticity.
Pricing Strategies
Artificial Scarcity: Storing excess to reduce the supply therefore charging more for a FMCG and
gradually increasing supply.

Pricing objectives
 Internal orientation
 Profit maximization
 Sales volume/market share
 Product quality attributes
 Competitive orientation
 Create barriers to entry
 Avoid competitive attacks
 Maintain current market position
 Political/External orientation
 Avoid political problems

Types of Pricing Strategies

 Common approaches of setting price of a product, service, or idea:
 Cost-based pricing
1. Uses information from accounting and predetermined profitability targets to
set pricing
 Competition-based pricing
2. Anticipated or observed price levels of competitors used for price setting
 New Product pricing
3. Done for innovative products, more difficult to set as there is no comparative
and little information to build on.
 Value-based pricing
4. Understand the customer and the competitor and price accordingly. Focus on
the benefit or value the product gives.
 Reference pricing
5. Uses information on customer willingness to pay and on customer price
elasticity as primary bases for pricing decisions. Internal and external reference
1. Cost-plus pricing
o Definition: used by 80% of companies. C-p pricing is a pricing strategy in which the selling
price is determined by adding a specific dollar amount mark-up to a product’s unit cost - direct
or marginal cost.
o Useful when the production costs of a product or the costs of providing a service are
not clear in advance.
o Under this approach, first you add together the direct costs - material cost, direct
labour cost, and overhead costs for a product and indirect costs – management
(salaries, wages), supplies, packaging, and transportation costs, machine and factory
costs, and overheads (selling/marketing/general/administrative), assuming that is
total is the breakeven. Then add a mark-up percentage (to create a profit margin) to
derive the price of the product. The mark-up varies based on the sales objective and
information regarding the price the customer will pay. Mark up – the extra price that
wholesalers charge that is an added percentage of the manufacturing cost. Low mark-
up in competitive industries (supermarkets), high in unique, innovative or high value
products (pharmaceutics).
o E.g. if the company needs a 15 percent profit margin and the break-even price is
$2.59, the price will be set at $2.98 (2.59 * 1.15).
o Development Contracts:
 Cost-plus is used to price large development projects, particularly
government contracts. It is not always easy to predict the total amount of
money needed to design or build e.g. an aircraft carrier. Instead companies
estimate the amount of work needed and the time it will take to complete
and then specify how much profit they will charge over and above the final
cost of the project.
o Long term pricing threshold – price covers direct cost, indirect cost, and margin.
Suitable for Profitability of the firm.
o Short term pricing threshold – price covers direct cost and gross margin cost. Suitable
for Market share gains, hurt competition.
o Dumping – setting prices below the direct cost to gain market share.
o Advantages:
o Simple: It’s quite easy to derive a product price using this method.
o Assured contract profits: Any contractor is willing to accept this method for a
contractual agreement with a customer, since it is assured of having its cost
reimbursed and of making a profit.
o Justifiable: In cases where the supplier must persuade its customers of the need for a
price increase, the supplier can point to an increase in its costs as the reason for the
o Disadvantages:
o Ignores competition: Company might realise competitors are charging substantially
different prices. This has a huge impact on the market share and profits a company
can expect to achieve. The company either ends up pricing too low and giving away
potential profits, or pricing too high and achieving minor revenues.
o Product cost overruns: Engineering department has no incentive to prudently design
a product that has the appropriate feature set and design characteristics for its target
market. Department simply designs what it wants and launches the product.
o Contract cost overruns: Supplier no incentive to curtail its expenditures.
o Ignores replacement costs: Method is based on historical costs, which may have
changed. The most immediate replacement cost is more representative of the costs
incurred by the entity.
Types of cost-based pricing
o Break-even analysis – price at which you make no profit.
o Floor pricing – Minimum profit is achieved and it is the pricing that is the lowest legal price a
commodity can be sold at. E.g. in terms of government minimum wage.
o Cost leadership pricing – aimed at generating the lost cost in the market to either gain more
market share or value in the eyes of the consumer by having lower selling price. E.g Kmart,
o Static cost management - Requires economies of scale – produce or or purchase in bulk to
reduce cost, and market-oriented allowable cost i.e. find the market (selling) price minus the
margin and then calculate the lowest cost you can manufacture the product. E.g. IKEA
o Dynamic cost management (Cost developed over time) – setting price based on the
experience of selling the product.
2. Competitive pricing
o Definition: product pricing is based on the price of the commodity or service in the market.
This pricing is effective especially if the product has many substitutes. E.g. price of a new brand
of shampoo, skincare, make-up, clothing, etc. The pricing is set based on external
requirements and internal strategy (gain entry into the market, market share).
o Leader Pricing (or Price Leadership): dominating organisation sets the price of the
products and the rivals feel compelled to match that price. This is seen in markets
where there is one dominant business in the industry coupled with smaller
competitors with less market power to set prices or where there are few large
companies where the leaders all match the price. E.g. Chemist warehouse.
o Predatory Pricing a.k.a Dumping: deliberately selling a product at direct cost to force
a competitor out of the market. Illegal to carry out in the market. Happens when there
is a strong supply by one business and the business is able to squeeze out the smaller
players by lowering the price due to advantage of economies of scale or strong
financial backing
 E.g. a real life example of predatory pricing and its potential
effect ws brough up in 2013, when it became evident to many that
Amazon.com, super-provider of both printed and electronic book, was willing
and able to offer books at prices well below those of their brick-and-mortar
competitor. The argument is that amazon has become such a powerful online
retailer that it threaten the life of the publishing industry. Amazon has shown
that it has the ability to purchase a book for say $16 and then sell it only for
$11, in many case not even charging for shipping. Many feel that amazon has
the staying power to continue selling books at prices well below those of their
competitor until it has sewn up the market. In fact, some experts have
expressed a concern that amazon may be able to drive prices down so low
that it will able to offer authors and publishers next to nothing for their
works. A potential danger here not recognized by most consumers is that,
after such a company has secured 90 percent of the market, and it starts
offering authors very low prices for their works, where else would they go to
get their books published? Some people feel that such a scheme has the
potential to change the face of providing and obtaining books and other
reading materials forever.
 E.g. Ola, India's largest ride-hailing service, is being probed by the
Competition Commission of India for predatory pricing. The probe reflects the
fierce competition in the Indian ride-hailing market, with a number of well-
funded companies investing large sums to get a quick lead in the market. The
CCI has clubbed together taxi services that offer booking by phone or
computer or through an app as "radio taxi services," which it considers
different from traditional yellow-black colored taxis that have been in
operation in the country for years. It has also arrived at the preliminary
conclusion that Ola holds a dominant position in the radio taxi services market
of Bangalore. Ola is also said to have "incentivized" its drivers unrealistically
by using the money raised from foreign investors, which cannot be matched
by existing radio cab operators or local enterprises planning to start similar
operations in the country. Based on the material placed on record, the CCI
observed that Ola spends per trip around 574 rupees (US$9), while earning
an average revenue of 344 rupees, leading to a direct loss of 230 rupees per
o Going-rate Pricing: when the price of the product is exactly that of the market and increasing
the price will lose most of its sales. Pricing through action – gumtree, ebay (B2C, C2C), Stock
exchange (B2B).
Going rate pricing primarily characterises pricing practice in homogenous product markets.
The concern selling a homogenous product in a highly competitive market has actually very
little choice about the setting of its price. There is apt to be a market determined price for the
product, which is not established by any single firm or clique of firms but through the
collective interaction of buyers and sellers. The concern that is going to charge more than the
going rate would attract virtually no customers. The concern should not be to charge less
because it can dispose of it’s entire output at the going rate. Thus, under a highly competitive
condition in a homogenous product market (such as food, raw material and textiles) the
concern really has no pricing decisions to make. The major challenge before such concern is
good cost control. Since promotion and personnel selling are not in the picture, the major
marketing costs arise in physical distribution.
3. New Product Pricing
- Definition: Pricing for a new product is difficult as they are a new product in the market an
there is little information to build one. The price of the product depends on the innovation
and if the price is low initially it is difficult to rise it afterwards. A price ceiling is the legal
maximum price for a good or service, while a price floor is the legal minimum price.
o Ceiling:
 Value-informed pricing: the monetary amount that customers are willing to
pay for the perceived benefits they will receive if they accept the market
 Competition-informed pricing: How and how much do competitors charge for
the perceived benefits they offer?
o Floor:
 Cost-informed pricing: What is the bottom-line price we need to be
- Skimming Pricing: Charging a high premium price combined with superior customer value.
o Works best:
 in a quality-sensitive market (product benefits that customers want at any
 with few competitors and little chance of competitors entering
 for a business with a sustainable differential advantage
 several customer segments with different levels of price sensitivity
o Advantages
 helps the company in recovering the research and development costs which
are associated with the development of new product.
 caters to consumers who are quality conscious rather than price conscious
o Disadvantages
 can backfire if there are close competitors and they also introduce same
products at lower price than consumers will think that company always sells
the products at higher prices which will result in consumers abandoning other
products of the company also.
 Not viable when there are strict government regulations
 If the company has history of price skimming than consumers will never buy
a product when it is newly launched, they would rather wait few months and
buy the product at lower price.

4. Value-based Pricing
- Definition: “Value-based pricing is the method of setting a price by which a company
calculates and tries to earn the differentiated worth of its product for a particular customer
segment when compared to its competitors”. Key to value-based pricing is to understand the
customer and competitor and price accordingly.
- Value-based pricing requires a careful understanding of the value a customer gets. Here the
value is the benefit you get in exchange for something you give up. When consumers are
forced to make tradeoffs in their purchase, brands can learn what they truly value.

o HRB Example: To understand how value-based pricing works, let’s take the example
of Brand A that is about to launch a new LED television. It wants to figure out the price
for its new 65-inch LED TV, the biggest screen size in the marketplace at the time. The
company’s closest competitor, Brand B, recently introduced a 60-inch TV for $799.
Both TVs have other features that are similar – both have built-in WiFi, the same level
of definition, same number of HDMI inputs, same refresh rate, and so on.
 Focus on a single segment: Value-based pricing always references one
specific segment (For B2B products, it can be a single customer). Brand A’s
focus is only big-screen TV buyers, not all TV buyers. Marketers can’t use
value-based pricing unless they have a specific segment. If they have multiple
segments, they must determine a suitable value-based price for each one.
 Compare with next best alternative: Value-based pricing only works when
the target segment has a specific competitor’s product they can buy instead.
Always asks the question: “What would this segment buy if my product wasn’t
available?” This “next best alternative” for the target is the essential point of
comparison for calculating the value-based price. For products that are truly
new, without peers, the value-based pricing methodology won’t work well.
 Understand differentiated worth: Next step is to identify product features
that are unique, that is, differentiated, from the competitor’s offering. In the
example only the larger screen size is a differentiated feature.
 Place a dollar amount on the differentiation: Last and most difficult step is
estimating the dollar value of the differentiated features. Example: how much
will big-screen TV shoppers pay for an extra 5 inches of screen size? And then
add that amount to Brand B’s price. To accomplish this step, marketers
typically use research methods like conjoint analysis or qualitative customer
o Just because the differentiated worth is $150 doesn’t mean the company will get it all
(negotiation process → marketer may have to share the differentiated worth with the
- Common misconceptions about value-based pricing:
o MC1: Value-based pricing requires the company to evaluate consumers’ willingness-
to-pay for each and every product feature
i.Features shared with competitor’s product are already captured in their
product price. Only calculate value of differentiated features.
o MC2: Even if competitors are not smart with pricing, using value-based pricing will
lead to success
i.Success of value-based pricing depends on how smartly competitors have
priced their products. If they have set untenably low prices, value-based pricing
can’t save you -> still only able to add the value of the differentiated feature
o MC3: The brand’s value is part of the value-based pricing calculation
i.Much harder to deal with brand value in v-b pricing. This is why brand value is
left out of the equation with v-b pricing. And it is one reason why the method
is more popular in B2B settings that give less weight to the brand value.
- Reasons value-based pricing isn’t more widespread: difficulty in assessing value,
communicating value, market segmentation, sales force management, and senior
management support.
o Problems:
 Lack of data, processes and tools to measure customer value reliably
i.Value, as perceived by customers, is seldom found in what the firm thinks it is
ii.Empirical tools: conjoint analysis, expert interviews and customer expert
interviews and customer value-in-use assessment.
iii.Deep understanding of customer value & using the language of the customer
→ allows seller to quantify willingness to pay with greater degree of
 Communicating the value offered, two challenges:
i.Companies are aware of the value of their product but unsure what this
performance actually means to a customer using the product.
ii.Buyers are reluctant to buy into “sales pitch” (interesting and compelling ways
to get the ear of the customer and earn their trust is necessary)
 Overcome market segmentation → companies use multiple variables to
segment their markets (age, disposable income, gender, account size,
industry type)
i.Customer segmentation starts with mapping customer needs
ii.Allows the differentiation between groups of people with varying willingness to
pay and prepare tailored offerings (typically reduces the perception that most
customers are quality-insensitive, price-conscious buyers)
 Sales force management (poor salesforce management leads to discount
waves to reach quotas) → long-term consequences is lack of confidence in
value added of one’s which further fuels price discounts.
i.Steps to be taken in salesforce management: establishing clear guidelines
for price promotions, staggering levels of approval for granting concessions,
restricting discounting latitude at the level of sales representatives,
continuously monitoring the gap between list
 Lack of senior management support
i.Many senior managers still believe that market share translates into high
profitability → sales force encouraged to seek top line growth by focusing on
volume and have no incentive to sell value.
ii.Important to establish that quality (profitability) of market share is more
important than sheer amount.
o Implementation of value-based pricing, five distinct types of capabilities needed to
understand and communicate value:
a. Capabilities in value assessment
b. Capabilities in value communication
c. Capabilities in market segmentation
d. Capabilities in sales force management
e. Capabilities in leadership
- Pricing for Value:
a. Value-based pricing implies basing pricing on the product benefits perceived by the
customer instead of on the exact cost of developing the product.
b. Difference Feature/Benefit: Feature → Legroom in airplane / Benefit → ability to
c. It is a method of pricing products in which companies first try to determine how much
the products are worth to their customers. The goal is to avoid setting prices that are
either too high for customers or lower than they would be willing to pay if they knew what
kind of benefit they could get by using a product. Most products are still priced according
to what they cost to produce. But some manufacturers and IT vendors employ an
alternative approach, using information technology to help estimate how much value a
product would provide to the buyer, then basing its price on that value.
d. For example, one pharmaceutical maker priced a new antiulcer drug, but not by
adding up the costs of developing and manufacturing the medication and tacking on the
amount of profit it wanted to make. Instead, the company used value-based pricing
techniques to justify a higher price than it might otherwise have been able to get from
medical insurers. Its weapon: studies that showed the new drug could help patients avoid
expensive surgery, which in turn would lower costs for the insurance companies.
e. Long term, by definition, prices based on value-based pricing are always higher or
equal to the prices derived from cost-based pricing (if they were lower, it would mean
that the actual value perceived by the customer is lower than the costs of producing the
good plus a profit margin, meaning that companies would not be interested to produce
and sell at that price in the long term).
- Conjoint Analysis Study is concerned with understanding how people make choices between
products or services or a combination of product and service, so that businesses can design
new products or services that better meet customers underlying needs. The fulfillment of
customers, wishes in a profitable way requires that companies understand which aspects of
their product and service are most valued by the customer. Conjoint analysis is considered to
be one of the best methods for achieving this purpose. It consists of generating and
conducting specific experiments among customers with the purpose of modeling their
purchasing decision. E.g. surveys/questionnaires asking client multiple questions to
understand their position in case of a new telecommunication service to be launched. These
questions would cover topics of price, features, brand, and network connectivity to get a well-
rounded response.
5. Reference Pricing
- Is also known as competitive pricing. because here the product is sold just below the price of
a competitor's product. Reference price is the cost at which a manufacturer or a store owner
sells a particular product, giving a hefty discount compared to its previously advertised price.
Marketers generally induce buying behaviour in customers by putting goods and services at a
huge discount compared to its original price. Human beings tend to compare the price of the
product with the reference price, and if the new price is heavily discounted compared to the
original price, it could trigger buying, thereby increasing value. Under r-p product choices
looks more attract next to a costly alternative than it does in isolation – Isolation Effect.
- Internal reference pricing: This is when the companies sets a price lesser than the previously
advertised price.
- External reference pricing: using the price of the competitors as a highest benchmark and
setting a price on par or lower.
- Brands use phrases like best price guaranteed to lure consumers. Brands are either price
matching or price beating. E.g. Bunnings in Australia, Life Pharmacy in Dubai, UAE.
6. Personalised Pricing
- Means selling the product for different prices – Airline, Hotel, Travel.
- It means moving the moving consumer surplus over to the manufacturer. The more there are
different forms of personalised pricing the more of the consumer surplus can be moved.
- Consumer can self select – selecting the ticket for a flight or be selected – pricing because you
are member or a loyal customer.
- Does different pricing work? To an extent they do work, depending on the context in which
the product is sold. If in a flight food is not included in the fare price of the ticket and it is a
long flight, travelers of the economy class may pay a different price for food than the business
or first class.
- Not every buyer is the same and the prevailing “one price fits all” model is becoming obsolete.
The promise is that machines will find valuable trends in consumer behaviour – what people
buy, when they buy and how they want to buy – and help retailers create specific offers and
prices that could encourage more spending. The online retailer only asks for your name when
you register on the website, but it carefully tracks what you have purchased and collect
personal information about your buying habits. Personalization helps them identify your
interest and your willingness to pay. Once you make a purchase, you are presented with
recommendations based on your previous purchases.
o E.g when purchasing a cookbook on amazon.com, you are presented with options of
cooking utensils that can go well with the cook book, or when you are shopping for
clothing on Asos.com suggested items pop up to enhance the appearance of the item
you purchased.
- Some forms of personalised pricing:
o Auction
o Promotional pricing
 Sales, coupons, rebates.
 Only worthwhile if these segment markets and fit with
product/service. E.g. ½ off chocolates, discount on dips when you buy
 For business markets consider the pass-through ratios. E.g. high-low pricing.
Charging high on a regular basis but running frequent promotions to lower
prices temporarily on selected items, Everyday low pricing (EDLP): charging
constant low prices with few or no temporary price discount – ALDI, CostCo.
o Group pricing (based on group membership/identity)
 Price sensitivity issues.
 Two versions:
 Supplier decision
o Product pricing varying for individual and/or business or
group. E.g. SPSS - company = $41,800, students = $59.
 Buyer decision
o Discounts when you take a credit card from a specific bank.
E.g. Emirates NBD offers Emirates lounge access at the
Emirates Airport.
 International Pricing
o Different versions in the same market for the same product –
electronic vs. paper books.
o International pricing: US edition textbook: $70, Indian edition
textbook: $25.
o Problems raised by internet: localisation is a partial solution,
grey markets cause parallel imports, and sometimes natural
barriers exist to deter grey markets, e.g. language,
keyboards, warranties etc.
7. Pricing Dynamics
- Pricing strategies do not only relate to the level at which you set a price but also the dynamics
of the price level. Few products have constant prices in most cases prices drop towards the
end of the product cycle. E.g. the value of a brand new car depreciates the moment it is out
of the showroom.

8. Product line pricing

- The process used by retailers of sperating good into cost categories. In order to create various
quality levels in the minds of consumers. Effective product line pricing by a business will
usually involve putting sufficient price gaps between categories to inform prospective buyers
of quality differentials also called price lining e.g. different prices to different Samsung mobile
models, apple models.
- Perceived value: some consumer want the best product available and are willing to pay more
for it while other shoppers just want a basic product and buy primarily based on affordability.
Creating a product line that offers low-end, mid-range and high-end pricing can lead
consumers to believe that different products have different values. The business will hace to
offer more features on its top-end product to justify a higher price if all the products are sold
under the same name and in the same place. Alternatively, the business might sell different
versions of a similar product under two different names; one might be sold with colourful
packaging and the other without it.
- Captive pricing: some business sell products in their line at a low price to get consumers to
use the base product and then they encourage them to buy add-ones or complementary
products. E.g. when you buy a Nutribullet you can additionally smoothie maker or added one
year guarantee on high value electronic products, purchase the hair care products used on
the clients hair when in the salon for a treatment.
- Loss Leaders: Selling a product at or below cost to lure customers in and drive other sales as
an e.g. for product-line pricing. A restaurant e.g., might offer a fall aerating and reseeding
package at a price well below the competition to a summer lawn cutting contract.
- Domino Effect: Part of the rationale of product-line pricing is that changing the price of one
product can affect the rest of the products in the line. E.g. if you set the price of your base
product too high, you might lose enough sales of that product to lose your total gross profits
because your adds on and related products are where you make your best margins. Setting
high prices for your base product may result in losing sales. E.g. Pet sitter may charge more
for day-time sitting and consequently lose customers who might have hired her for overnight
stays, grooming or training services.

9. Value, Price & Ethics

- There are many ethical considerations to pricing:
o Access to services may be restricted due to high prices:
 Healthcare (for individuals and countries)
 Education (idem)
 Healthy food
o Predatory pricing: pricing below marginal costs with the purpose to drive competitors
out. Afte competition is driven away prices rise – In Australia this applies to firms that
have a substantial part of the market and set lower prices than the competition with
the purpose of pushing the competition out.
o Monopoly pricing
 A pure monopolist in an industry is a single seller such that there is no
competition. It is rare for a firm to have a pure monopoly – except when the
industry is state-owned and has a legally protected monopoly. A monopoly
has absolute market power, and thereby can set a monopoly price that will
be above the firm’s marginal (economic) cost, which is the change in total
(economic) cost due to one additional unit produced.
o Price Fixing
 Occurs when competitors agree on pricing rather than competing against
each other. In relation to price fixing, the competition and consumer act
refers to the ‘fixing, controlling or maintaining’ of prices. A price fixing cartel
occurs when competitors make written, informal or verbal agreements o r
understandings on:
 Prices for selling or buying good or services
 Minimum prices
 A formula for pricing or discounting good and services
 Rebates, allowances or credit terms.
 Impact of price fixing is to fixing, controlling and/or maintaining prices. It
can affect consumers as well as small businesses that rely on those suppliers
for their livelihood. E.g. a lot of consumer goods are transported by freight.
If the price of freight is artificially maintained or inflated by a cartel, it can
affect the whole supply chain, and result in higher prices for all sorts of
goods and service.
o Obsolescence is the state of being when an object, service, or practice is longer
wanted even though it may still be in good working order. Obsolence frequently
occurs because a replacement has become available that has, in sum, more
advantages than the inconvenience related to repurchasing the replacement.