(1) Uncertainty Eﬀect: Uncertainty over realization of attributes
• For example, a new anti-dandruﬀ shampoo was unable to command a
price premium because its claims could not be veriﬁed by experts and
consumers knew that its eﬀectiveness would vary.
(2) Newness Eﬀect: Attributes are new and therefore hard to understand
• For example, Boxee is a ‘freeware cross-platform media center software
with social networking features that is a fork of the open source XBMC
media center software with some custom and proprietary additions’.
Since customers are unlikely to understand the value that implies,
they may have to price below EVC when they release their hardware
(allegedly) in 2010.
• Make clear this is temporary. 1969 study: Five brands in two stores.
One had discount from initial price, other had no sign of discount. In
all ﬁve cases, the store that had marked the discount as being from
the list price did better in the long run.
(3) Expenditure eﬀect: When it is a larger proportion of expenditure.
• For example, an industrial carpet cleaner could charge higher prices
to oﬃce managers than dedicated oﬃce cleaning companies.
(4) When it is ethically right or legally appropriate to do so
• Bottled water priced at $35 for a 12 pack during Hurricane Rita
• North Carolina ‘Price Gouging Law’. North Carolina deﬁnes price
gouging as intentionally charging an unreasonably excessive price un
der the circumstances for goods or services that are used by North
Carolinians during an emergency to preserve, protect or sustain life,
health, safety or economic well-being.
May wish to price below EVC for strategic reasons if.
(1) Winner-takes-all market
(2) Initial Customer Lock-In
(3) Pre-empt competitive response
Using EVC as a Pricing Formula
It is best to use EVC as a pricing formula
• When competitor’s prices are well-known and concrete
• When a product’s diﬀerentiation value is easy to calibrate
• When a product’s diﬀerentiation value is easy and believable to communi
The Atlantic Computing example is an almost ideal setting for the use of EVC as
The ideal setting for the use of EVC as a formula is one where the seller knows
precisely how the customer will use the product, and intimate details of their likely
cost savings or net beneﬁts of using the technology. This generally implies a man