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Pricing Strategy: Case Study of Eurotunnel - Essay Example

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The proposal of the tunnel connecting England and France under English Channel has been a matter of planning and cost overrun business over the decades. When it could not be denied that a tunnel would serve significant advantage over the traditional ferry services that were used…
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Pricing Strategy: Case Study of Eurotunnel
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Download file to see previous pages After opening of the tunnel in 1994, huge enthusiasm among people was observed. People interested to cross English Channel in an easier, comfortable and shorter time compared to the traditional ferry services. On the other hand, traditional ferry services were preferred by most of the tourists and traditional customers because of the sense of enjoyment and safety aspects of the ride (Besanko and Stori, 2006).
This report is intended to discover the effectiveness of channel tunnel built and operated by Eurotunnel with respect to the traditional ferry services. The analysis is based on the cost and pricing of these two services. A careful analysis of the case study along with the standardized pricing model used by Eurotunnel can give an insight of the relative advantages or disadvantages of one service on another.
The pricing strategy used by Eurotunnel is the traditional cost plus pricing where the price is set according to the predicted cost of producing and delivering the product/services. According to this theory, pricing of every product or service is targeted to earn a fair return over all costs that are fully and fairly allocated. Although this type of pricing ensures fair return above any cost figure, it generally results in mediocre financial performance. This is the way of improving the firm’s profit by increasing the production until marginal revenue of the product/ service is equal to the marginal cost. Thus, in this method, marginal cost is an important element and it is assumed that marginal cost of any product results in cutting down the profit figure of a business. There are certain advantages of using this method, for example, in case of handling many products, a firm can successfully implement cost plus pricing by which fair prices of products can be easily achieved. This approach of pricing involves full cost of production and thus, this ensures that the ...Download file to see next pagesRead More
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