Ps of Marketing - Price
What is the Price in the Marketing Mix?
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What is Price in the Marketing Mix?
Pricing a product is a complicated process. It generally entails considerations of economics. You may be familiar with the concepts of supply, demand, cost, and elasticity.
In summary, a depending upon the customer's sensitivity to price, a product with have higher demand at a lower price. Inversely, it will have lower demand at a higher price.
In theory, we would seek to determine the price that generated the most revenue based upon the level of demand at that prices (demand x price = revenue). Unfortunately, the determination is often more complicated.
The marker must determine the price of the product based upon its purpose. For example, a product may serve as a loss leader. That is, the company will lose money on the sale of that product in an effort to persuade customers to purchase a separate product.
Also, there may be operational limitations on the ability to meet demand at a given level. For example, meeting a given level of demand may require more employees, more raw materials, more complicated logistics, or anything that leads to higher per-unit costs based upon the manufacturing process.
What are Strategies Used in Setting a Price?
At it's most basic level, companies will set the price of a product that meets produces the greatest revenue, greatest profit, or meets the strategic needs of the company.
A deeper analysis if pricing might include considerations of what is fair to the customer. Remember, an objective of marketing is to create value for customers as well as the company.
Then, there is the consideration of the strategic effect of pricing upon the customer. That is, \ marketer may wan to choose a pricing strategy that focuses on setting a prices that has an intended effect on the customer.
We gave the example of above of using a product as a loss leader to attract customers to purchase other products. Another strategy may be to position the product as a luxury good. This means the product will generally have a higher price that creates some level of exclusivity among purchasers.
Further, a slightly-higher price may indicate product quality to the customer. Conversely, a lower price may indicate lower quality and performance.
Some examples of pricing strategy are discussed in the following articles:
- Competition-Driven Pricing
- Profit-Oriented Pricing Strategy
- Sales-Oriented Pricing Strategy
- Status Quo Pricing Strategy
- Value-Based Pricing Strategy
- Penetration Pricing Strategy