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Introduction
It is axiomatic that price occupies a special role within the marketing mix since it alone directly generates revenues: all other marketing mix variables incur costs. Developing and producing brands, creating and executing promotional campaigns and distributing products entail expenditures. No matter how well brands exceed customer expectations, how excellent are promotional campaigns or how effective and efficient are distribution systems, if price does not cover costs losses will arise. These simple facts of commercial life mean that pricing research has the potential to be of supreme significance to marketing managers. Indeed [60] Rao (1986) has argued that price setting is the most important of all marketing mix decisions.
Our study is novel in the pricing domain as it is based on a combination of statistical modelling and survey research. It seeks to develop a statistical model based on primary data gathered by means of a survey. In particular, it seeks to identify a set of marketing-orientated factors that discriminate between the use of successful high versus low price strategies, and results in an empirically-based decision support model to aid managerial judgement when setting prices. As such, it is a response to [29] Gijsbrechts (1993) request for more research that provides managerial guidelines and knowledge-based systems for pricing.
The distinction between setting price higher or lower than the competition is a fundamental decision faced by all marketing managers. The notion of high versus low prices was introduced by [19] Dean (1950) who distinguished between skimming prices (relatively high prices that had the potential to be gradually reduced) and penetration prices (relatively low prices). Marketing practice is replete with examples of brands that have successfully competed on the basis of high and low prices. For example, Glaxo used a high price strategy to establish Zantac among medical practitioners as the premier treatment for patients with stomach ulcers. Conversely, Komatsu competed successfully against Caterpillar in the earth-moving equipment market based on a low price. Although [55] Noble and Gruca (1999) established the practical conditions that favour each of ten common pricing strategies derived from the literature, what has not been researched are the conditions under which high versus low pricing strategies can be used successfully. This is the focus of our study.
First, we develop hypotheses...