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Competition can affect your firm’s pricing strategy in two ways:

1. Location of the competitors

In most cases a small firm must match the prices charged by nearby competitors on identical items, unless the firms’ clients perceive a difference in the quality and the quantity of the extras provided. A customer will most always choose the least expensive option, unless there is an obvious perceived value difference

2. The nature of the competing goods

A small firm can differentiate its product by creating a distinctive image in the consumer’s minds. Focusing on a products perceived value means a product can can be price according to its own line, not that of the competitors. This works well with ‘prestigious products’, such as a cafe offering fair trade or organic coffee.