Price is the amount of money charged for a product or service. It is a value a consumer is willing to exchange for the benefit of owning or using a product or service. Most customers equate the price they pay with the value of the product they get in return for the amount. Pricing has a dual marketing function of making products affordable to its target market and at the same time, reflecting the value of a product.
The price charged for a product or service, therefore, be not more than the value of the benefits it provides to customers.
Price is the only element in the marketing mix that produces revenue, all other elements represent the cost. It is also the most flexible element in the marketing. Unlike product, place, and promotion, prices can be changed quickly. However, pricing and price competition is the number one problem that plagued many marketing executives.
In essence, many companies do not know how to handle pricing well. Some are too quick on reducing prices to get a sale rather than resorting to convincing the customers that their products are good and deserve a higher price.
Other common mistakes in pricing are being too cost oriented rather than customers-value oriented, prices that are revised often to reflect market changes, pricing that does not take the other elements of the marketing mix into consideration, and prices that are not varied enough for different products, buyer segments, and buyer occasions.
Price decisions, therefore, must be coordinated with product design, distribution and promotion decisions to form consistent and effective marketing program.
Marketing Mix Strategy
Price is one of the elements of the marketing mix that a company could use to achieve its objectives in the target market. Decisions made for other tools in the marketing mix could affect prices. For example, producers using many retailers who are expected to support and promote their products may have to build larger reseller margins into their prices.
More promotional activities would also require the company to build additional margins that could raise the price level if its products or service.
Some companies start with target-costing that is reversing the usual practice of first designing a new product, determining its cost and then finding out whether the company can sell it. With target costing, the company sets an ideal price based on customer considerations and then targets costs that will ensure that the price is met.
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