Having a pricing objective is not enough. The factors of the environment that include market and demand, cost, price and offers of competitors and other external factors affect the pricing strategy of every company. There are 4 major types of markets recognized by economists that need to be considered as each one presents a different pricing challenge.
Pricing decisions depend on the price range that the sellers can differentiate their products or services. Either the physical product can be varied in quality, features or style, or the service that goes with it can be varied.
The Market and Demand
If the company costs set the lower limit of prices, the market and demand set the upper limit. Both the consumer and industrial buyers examine the price of products or service against the value they get out of owning it. It is thus necessary for marketers to examine the relationship between price and demand for its product.
Pricing in Different Types of Market
The seller’s pricing choice varies with different types of markets. Under pure competition, the market consists of many buyers and sellers trading in a uniform commodity like corn, sugar, or financial securities. Neither the seller nor the buyer has much effect on the going market price.
A seller cannot even sell less than the market price because all of them can sell at the specific price. If price and profits rise, the new seller can enter the market. In a purely competitive market, all other marketing activities like marketing research, product development, promotion, and pricing play a little role or no role.
Consumer Perception of Price and Value
The customer will decide to whether a price range is right. Pricing decisions, like all other decision in marketing mix elements, therefore, must be market oriented. When consumers buy a product they exchange their money with a perceived value of the product or service they buy.
Thus, the marketer must understand how much value customers place on the benefits they receive from the product before setting the price that fits this value.
Analyzing the Price-Demand Relationship
Each price the company sets for its product or service will lead to a different level of demand. In the normal case, demand and price have inverted relationship; that is, if the price is high, demand for the product or service is low. In this case, consumers with a limited budget buy less if the price is high.
In the case of prestige goods, the high price range would make the consumers think that the products are of better quality.
These factors include the offering’s cost, the customers whose needs it is designed to meet the external environment such as the competition, the economy, and government regulations and other aspects of the marketing mix, such as the nature of the offering, the stage of its product lifecycle, its promotion and distribution.
In addition to setting up a pricing objective, a firm has to look at a number of factors before setting its price.
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