The price process is directly connects with the worth of a service, product or concept in terms of the amount of money available at a particular moment that the marketing manager decides to promote it to potential customers. Precisely, Pricing involves establishing objectives, determining flexibilities, establishing strategies, setting prices, and controlling implementation.
Importance of Pricing
In general, sellers and buyers attempt to agree on the amount paid for a particular product or service. There is an importance of pricing to industries that serve customers, and four ways to promote business activities are given in the following paragraphs:
1. The Importance of Pricing to Customers
i) Affect Pricing Power
If the item cost is high and the buyers are forced to decrease the amount they purchase because they have limited funds to buy the products, and if the item is optional, they might even opt not to purchase it. Prices that are higher restrict sales of specific products.
ii) Price Indicates Quality of Product
It is a widespread belief that consumers have that goods with higher costs are also of higher quality. In the absence of any other information about the product, the higher cost is the only evidence of this.
iii) Value Perception of the Customer
Sometimes the product cost fails to meet the buyers’ expectations, and sometimes, it needs to be more than expected. In the first instance, the business suffers from image and business over the long term, and in the second, customers are happy as it is the importance of pricing. However, the business also suffers a loss in profit. Therefore, it depends on the correct decision made by the marketer in making the right choice for the price.
2. Importance of Pricing to Firms
The importance of pricing for the companies is as below:
i) Determines Profitability
The cost of the product is directly link with the profits of the business that it expects to get. It is the importance of pricing to the firms. The companies receive their profits in terms of money determined by the price of the merchandise. So, any rise or decrease in the price of the product can affect the profit.
ii) Determines Market Share
The cost of a commodity is one of the significant factors affecting market demand. Price influences the competitiveness of the product and the market shares it holds.
iii) Determines Success
If the price is reasonable, sales will be minimal, and the produced revenue will need more to pay the production costs. In the alternative, it is the importance of pricing where the product cost needs to be higher, the business suffers losses. So, the price has to be reasonable for the company’s prosperity.
iv) Inter-Firm Rivalry
The pricing policy can also create fierce competition among competitors. The money spent on advertising, intermediaries, and lucrative schemes increases the business’s operating expenses. Companies must also invest more in advanced technology and products to gain supremacy.
3. The Importance of Pricing to the Economy
The importance of pricing in economic growth is in the following paragraphs:
i) Factors Influence Production
The main factors that drive manufacturing are capital, land, machines and labor. As the product price increases or decreases, the cost and profit as a percentage can also increase or decrease. It is the importance of pricing. Profit increases put the producer into place to spend more money on production processes to make more profit. The decrease in profits forces him to decrease the production processes to help sustain the business. So the pricing policy affects the production process in two ways.
ii) Determines Supply and Demand
The price for the item also determines the supply and demand of the product in the marketplace. Higher prices lead to an increase in supply but a decrease in demand due to the insufficient capacity to pay regular customers. The lower price leads to an increase in demand but a decrease in supply because of the increase in the number of customers and the inability of the business to meet the demand. Therefore price policy will be the main element in determining supply and demand.
iii) The Impact of Savings and Investments
The ability to pay consumers still needs an improvement. Due to this fact, increasing the cost of a good leads to an increase in their savings and investment. A decrease in the price of a product boosts their savings and investment. It is the reason for the effect of pricing on investment and savings as it is the importance of pricing. Government intervention can be mandatory in the most alarming phases of price fluctuation or decline.
iv) More Efficient Utilization Of Resources
The prices determine the demand for the goods. The company’s profits are based on the price they assign to the products. If the prices aren’t competitive, they will likely lose their company due to the inability to maintain production costs. Competitive prices can only be obtained by better utilization of production elements. It is the importance of pricing. Public sector organizations operate solely on the budget obtains from the revenue that is derived through the federal government.
v) The Role of Inflation in the Economy
When inflation is on the rise, the pricing policy is significant due to the following reasons:
a) When inflation is high, the buying ability of consumers diminishes. To keep the business going, entrepreneurs need to discover alternative substitutes or ways to lower the prices of items.
b) In the event of inflation, the price of materials and labor, and so on. Increase, which in turn increases the cost of items.
Factors Affecting Pricing Policy
The variables that affect the price of a product can divides into two elements:
1. Internal Factors
The factors affecting pricing policy are in the following sections:
i) Organizational Factors
Two organizational levels decide the price at which the goods are sold. The top-level executive is restricted to planning the price range and market segment linked to the product. The Lower-level executives craft the essential pricing details, who are deep into the specific products to determine the product’s strategy.
ii) Marketing Mix
Marketers consider the cost of the products as a single factor among many other aspects. The rise in the cost of products causes an increase in production, advertising cost, and even distribution.
iii) Product Differentiation
The attractive qualities of the product, such as the appearance, the color packaging, packaging, after-sale service, a match with modern trends, fashion, and alternative use of the product influences the price of the product. These factors affecting pricing policy. These aspects could draw customers’ attention and prompt them to spend more.
iv) Cost of the Product
In determining the price of an item, the price or production cost must be addressed by any firm. Additionally, refinement is needed to determine the final price, which is contingent on market demand and the price provided by competitors. The product needs to be available on the market and compete with the market, and any erroneous calculation regarding pricing could result in an unsuccessful product.
v) Goals of the Company
The goal of a firm may change over time and conditions based on the company’s financial situation, which can impact the pricing choices.
If, for instance, the aim is to raise money for charity, the prices are set with no profit and have no loss basis to increase market share. The prices must be lower than competitors, even at a loss, to win customers’ trust. Sometimes, the image of the business restricts it from raising prices. Therefore, prices are set based on the mission of the business.
2. External Factors
These factors are as the following:
i) Demand
It is a regular occurrence in marketing that scarce products are priced higher, indicating their vast demand. The demand for any product is based on its value as well as the number of customers who purchase it and the availability of similar products on the market and the price they command and the ability to pay the buyers as well as their increased appreciation of the product because of additional characteristics like appearance and offering plans.
ii) Competition
The price of competitors’ products on the market has an important impact on pricing. To remain competitive, it is the responsibility of companies to keep the cost of the product competitive or lower. The higher prices are provided only if the name is well-known.
iii) Suppliers
If the cost of the raw materials used in the production of goods rises, the supplier will be able to charge more for the same quantity of raw materials supplied. The manufacturer is then forced to transfer the increased cost onto the customers through an increase in cost.
iv) Economics
The price of goods is directly have link to deflation or inflation worldwide. In the event of an inflationary situation, it is the case that the costs of inputs increase and the costs of products also increase. In deflationary times the prices have to be lowered to ensure the selling of the product and the business’s turnover.
v) Buyers
The decision to price the business on the product impacts the customers. The price hike lowers consumers’ purchasing power and creates constraints on the customers. Consumers can alter their plans for purchasing items. It can significantly impact the company’s revenue in cases where large numbers of customers utilize the product.
vi) Government
The government has a say in the price of the products, and the producers cannot sell the product alone. The government’s legislation restricts the price of the products to certain limits, and market surveyors keep a watchful eye on the items sold by private entrepreneurs.
Why is Price Important in Marketing?
Price is one of the most important aspects of marketing management because it is one of the main ways that companies determine how to position their products and services in the market. Price also affects demand, which is another important factor in marketing.
How Important is Price to Consumers?
Price is important to consumers because it is one of the main factors that influences their purchase decisions. Other factors that influence purchase decisions include product quality, brand reputation, and customer service.
What are the Factors that Affect the Pricing Policy?
There are a number of factors that can affect the pricing policy of a company, including the company’s overall business strategy, the competitive environment in which it operates, the prices of its competitors, the costs of production, and the availability of substitutes.