In the narrowest sense, price is the amount of money charged for a product or service. More broadly, price is the sum of all the values that consumers exchange for the benefits of having or using the product or service.
PRICE – The amt of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.
“One can define price as that which people have to forego in order to acquire a product or service.” What does a buyer think? To a buyer, price is the value placed on what is exchanged. Something of value – usually purchasing power – is exchanged for satisfaction or utility. Purchasing power depends on a buyer’s income, credit, and wealth.
Buyers’ concern about price is related to their expectations about the satisfaction or utility associated with a product. Buyers must decide whether the utility gained in an exchange is worth the purchasing power sacrificed. Different terms can be used to describe price for different forms of exchange, (rent, premium, toll, retainer, fee, interest, etc.).
Historically, price has been the major factor affecting buyer choice. This is still true in poorer nations, among poorer groups and with commodity products. However, non-price factors have become more important in buyer-choice behavior in recent decades.
Price is also one of the most flexible elements of the marketing mix. Do you agree ? Unlike product features and channel commitments, price can be changed very quickly. At the same time, pricing and price competition is the number-one problem facing many marketers.
SETTING THE PRICE – Let us now attempt to understand the process of how firms set prices. When does a firm set prices? A firm must set a price for the first time when it develops a new product, when it introduces its regular product into a new distribution channel or geographical area, and when it enter bids on new contract work. Is Setting prices easy ?. It involves making a number of guesses about the future. You would want to Know how , an organization should proceed as follows:
1.Identify the target market segment for the product or service, and decide what share of it is desired and how quickly. 2.Establish the price range that would be acceptable to occupants of this segment. If this looks unpromising, it is still possible that consumers might be educated to accept higher price levels, though this may take time. 3.Examine the prices (and costs if possible) of potential or actual competitors. 4.Examine the range of possible prices within different combinations of the marketing mix (e.g. different levels of product quality or distribution methods). 5.Determine whether the product can be sold profitably at each price based upon anticipated sales levels (i.e. by calculating break-even point) and if so, whether these profits will meet strategic objectives for profitability. 6.If only a modest profit is expected it may be below the threshold figure demanded by an organization for all its activities. In these circumstances, it may be necessary to modify product specifications downwards until costs are reduced sufficiently to produce the desired profit. An organization goes through the following steps in setting its pricing policy
Now let us discuss the process in detail
1) Selecting the pricing Objective – You would agree that the foremost step is identifying pricing objectives. The company first decides where it wants to position its marketing offering. The clearer a firm’s objectives, the easier it is to set price. What are pricing objectives ? A company can pursue any of five major objectives through pricing: survival, maximum current profit, maximum market share, maximum market skimming, or product-quality leadership.
Companies pursue survival, as their major objective if they are plagued with overcapacity intense competition, or changing consumer wants. As long as prices cover variable costs and some fixed costs,...
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