Pricing is one of the most important factors in the field of Trade. Pricing to a commodity means attaching value to the product. To purchase or sell it both the consumer taking the product and the seller giving off the product benefits from the ‘value’ in return for some bearing. Like the customer gives the money to the seller to take up the ‘value’ of the product and the seller gives off the product to earn the ‘value’ of money selling the product.
It is a process in which we decide the value a manufacturer or a seller gets when he offers his goods or services. In this process, both the producer and consumer negate to mutually benefit at an equitably profitable price. It is dependent on various things like how much the company has spent on the inputs, what is the value of a product in the market, what is the need of the product to the customer etc., All the producers and businessmen want to earn profits when they start a business. But, the expected price might vary according to the market conditions, prices of supplementary and complementary goods, changes in input cost like hike in raw materials, labour cost etc.,
Pricing being the basic necessity of trade are discussed further in this section.
What is Price in Marketing?
Price is the amount which one pays for a good or service or any idea. This is the amount for which the product is exchanged with potential customers. Pricing the product or the service is the most essential for a business decision that is to be made by the owner of the business.
One must attach the price to the product which the target market is willing to pay, they should also keep in mind the profit margin they need to acquire to hit their target. This all will help the business to endeavor.
Other approaches are also included in fixing the price of the commodity or service. These approaches include:
The accountability of cost,
The degree of competition prevailing,
The customer’s expectation from the product, and so forth.
‘Right Price’ is one of the important criteria for business success. The right pricing policy is a guideline set by the top-level managers to achieve good sales of the product. Price is indeed a weapon to bring competition in the market, to change the satisfaction level of the consumers. The distribution channel of distribution is affected by the pricing policy.
Both the terms price and ‘Pricing’ are different in their aspect, Pricing is the method of translating the value of the product in price or quantitative amounts like rupees or dollars.
Types of pricing methods:
The entire pricing method is divided into two basic types:
Cost-oriented pricing method: it is used by most companies to determine the price of finished goods. It is further divided into cost-plus pricing, markup pricing, target returning pricing. In the cost-plus method, the manufacturer calculates the cost of production and adds up a certain percentage as a profit on the cost of production. In the markup method, a certain percentage of the cost of the product is added to the end price to obtain the final product. In the target returning price method, the company fixes the price such that it gets the amount invested in the production process of a good.
Market-oriented pricing method: the price of a good or service in this method is determined according to the trend and research of the market. It is further divided into 5 types. In the perceived value pricing method, the price of a good is fixed keeping the viewpoint of the customer into consideration. They consider elements like production cost, quality of the product, advertisement and promotion.
In the Value pricing method, the company tries to produce a product that is of superior quality and inferior cost. In the going-rate pricing method, the company decides the price of their product by taking an example from the price of their competitor as an estimate. In the auction type pricing method, the product is auctioned preferably, online through an e-commerce site and they are sold to the highest bidder. In the final method of differential pricing, the price of a good is changed for different people or customers. It changes across time, area and target customers.
Factors influencing Pricing
The factors influencing the price can be divided into two heads – Internal Factors and External Factors.
Talking about the internal factors means the factors that work from within the organization. The factors are:
Two management levels decide the pricing policy, one is the price range and the policies are decided by the top-level managers while the distinct price is fixed by the lower-level staff.
For implementing a price, the marketing mix needs to be in sync, without matching the marketing mix, consumers will not be attracted to the price. The marketing mix should be decisive for the price range fixed, meaning the marketing mix needs to maintain the standard of the price of the product.
In today’s market, it is uncommon to find a unique product, hence the differentiation lies in the nature, feature and characteristic of the product. The added features like quality, size, colour, packaging, and its utility all these factors force the customers to pay more price regarding other products.
Cost of the Product:
Cost and Price are closely related. With the cost of the product, the firm decides its price. The firm makes sure that the price does not fall below the cost lese they will run on losses. Cost of the price includes the input cost that a company spends on raw materials, wages for labourers, advertisement cost, promotion cost and salaries for the employees
External factors are not under the control of the firm. These factors affect the whole industry group uniformly. Yet, a company tries to estimate any upcoming problems in the external environment and also makes up a backup plan in advance. This is done by forecasting the market trend.
The factors are:
The market demand of a product has an impact on the price of the product, if the demand is inelastic then a higher price can be fixed, if the demand is highly elastic then less price is to be fixed. When the demand for the goods is more and the supply of the goods is constant, the price of the goods can be increased and if the demand for the goods decreases the price of the goods should be decreased to survive in the market.
The prices are required to be competitive without any compromise on the quality of the product. While in a monopolistic market, the prices are fixed irrespective of the competition. Thus, the manufacturer tries to estimate the price of his competitor. When the price of the supplementary goods is high, the customers will buy the manufacturer’s product.
If the supplies condition, the easy availing option of the raw materials are available, then the price of the product can be moderate. Once, the raw materials supply price heightens then the price also rises.
In the period of recession, price is lowered so that easy purchase is guaranteed. While in boom periods, prices shoot up high as now they can earn profit.
Determinants of Price in Marketing
The main determinants that affect the price are:
The Utility and Demand
The extent of Competition in the market
Government and Legal Regulations
Marketing Methods used
These are the particulars of pricing methods justified in the business world.