Directorate of distance education

Cost Recovery
Cost recovery does not mean paying the cheapest price. It 
does
mean gaining the highest leverage per dollar spent. Often, in fact, it makes 
more sense to spend a little more to obtain a product or service that most 
closely aligns with your needs and brings satisfaction. Too frequently, «I 
got it cheap» is the consolation prize when you end up with something 
that really doesn’t properly serve your needs
(a) Vertical Differentiation
Vertical differentiation occurs in a market where the several goods 
that are present can be ordered according to their objective quality from 
the highest to the lowest. It’s possible to say in this case that one good is 
“better” than another.

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Notes
131
Vertical differentiation can be obtained:
1. Along 
one decisive feature
;
2. Along a few features, each of which has a 
wide possible range
of 
(continuous or discrete) values;
3. Across a large number of features, each of which has only a 
presence/
absence
“flag”.
In the second and third cases, it is possible to find out a product 
that is better than another one according to one criteria but worse than it 
in respect to another feature.
Vertical differentiation is a property of the supplied goods but, 
as it is maybe needless to say, the 
perceived difference in quality
by 
different consumer will play a crucial role in the purchase decisions. 
When evaluating a real market, a good starting point is a top-down grid 
of interpretation, we shall present first in 3 segments.
Class
Price
Crucial feature 
Low
Low
The price is low, the product simply works 
Middle
Middle
Use of the good is comfortable. Most people use 
it. Mass market brand.
High
High
Quality, exclusivity, durability (= low life-long 
price), 
To this basic classification, one should add two intermediate classes: