download app banner

Introduction to Pricing

Pricing is one of the most important factors in the field of Trade. Pricing to a commodity means attaching the value to the product. In order to purchase or sell it both the consumer taking the product and the seller giving off the product benefits from the ‘value’ in return of 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.

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 for any idea. This is the amount for which the product is exchanged to the 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 with the pricing policy.

Both the term ‘Price’ and ‘Pricing’ are different in their aspect, Pricing is the method of translating the value of the product in price or quantitative amount like rupees or dollars.

Factors influencing Pricing

The factors influencing the price can be divided into two heads – Internal Factors and External Factors.

Internal Factors

Talking about the internal factors means the factors that work from within the organization. The factors are:

1. Organizational Factors:

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 actually fixed by the lower level staff. 

2. Marketing Mix:

For implementing a price, the marketing mix too needs to be in sync, without matching 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.

3. Product Differentiation:

In today’s market, it is uncommon to find a unique product, hence the differentiation lies on the nature, feature and characteristic of the product. The added feature like quality, size, colour, packaging, its utility all these factors forces the customers to pay more price in regard to other products.

4. 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.

External Factors

External factors are not under control of the firm. These factors affect the whole industry group uniformly.

The factors are:

1. Demand:

The market demand of a product has an impact on the price of the product, if the demand is inelastic then higher price can be fixed, if the demand is highly elastic then less price is to be fixed.

2. Competition:

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. 

3. Supplies:

If the supplies condition, 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:

  1. Product Cost

  2. The Utility and Demand

  3. Extent of Competition in the market

  4. Government and Legal Regulations

  5. Pricing Objectives

  6. Marketing Methods used

These are the particulars of pricing methods justified in the business world.

FAQs (Frequently Asked Questions)

1. What is the Channel of Distribution?

Ans. The distribution channel that the company follows to make the product delivered to the customers is known as the distribution channel. In the first place there are – producer, wholesaler, retailer and consumer. This is the most basic and the shortest distribution channel, there are other more complicated distribution channels as well. 

2. What is the Right Price?

Ans. Right Price does not mean the lowest price. It is the price that is being analyzed and decided by the managers. They take a number of factors in their view, they think about the marketing mix, competition prevailing in the market, the cost and other factors too.

3. What is the Representation of Price to the Manufacturer and the Consumer?

Ans. To a manufacturer it is the quantity of money that is received by him, for his efforts in making the product. While, for a consumer it is the sacrifice being made due to the gain of the product. Hence, perception of the same price is different in different viewpoints.

4. What is Inelastic Demand?

Ans. The consumer’s demand which is not at all responsive to the price of the product is defined as inelastic demand. The price of the product does not affect its demand. Essential products like medicine, food have this kind of demand. Whether they are priced at a higher range or a lower range, the demand of the consumers remains equal throughout.