Product price - its importance and role in marketing

Service Business

The concept of price in economics is defined as the amount of some good, usually money, for which the seller agrees to transfer rights to another good. In marketing, the idea of ​​price becomes even more complicated, because it does not only mean the amount of money that has to be paid for a given product - it also determines the features of a given product. In terms of marketing, the price of the product:

  • defines the features and values ​​of the product,

  • identifies potential buyers,

  • creates a product as mass or exclusive.

The price of the product is distinguished by:

  1. High degree of flexibility: in order to change the price of a product, the entrepreneur does not have to incur additional expenses, moreover, these changes can occur immediately, without the need for a delay in time.

  2. Quickly triggering buyers' reactions: buyers react quickly to a change in the price of a product. Conversely, changes to other elements of marketing typically take time to influence consumer decisions.

  3. A high degree of homogeneity: price, unlike other marketing instruments, can in fact be ascribed to one feature - its value at a higher or lower level. As a result, the company's competition can react quickly to its changes.

Product price - strategies and modifications

Choosing the right pricing strategy depends on the types of constraints that traders face as well as their severity. The limitations include, for example,those produced by potential buyers themselves or competing companies. A properly selected strategy should aim at suppressing the aforementioned limitations.

Price strategies can be divided according to various criteria. The table below shows a breakdown of the pricing strategy in marketing:

Criteria

Types of pricing strategies

Relation

The purpose of the enterprise and the rules of shaping and changing prices

  • Penetrating

  • Selective

Enterprise - buyer

How an enterprise determines a price in the context of prices offered by competitors and their changes

  • Adaptive (imitative)

  • Innovative

Enterprise - competition

Coupling of the price with other marketing elements

  • Price and quality

  • Price and promotional

Price - other marketing instruments

What exactly are the individual marketing strategies different?

  • Penetration strategy

The first of the mentioned groups of strategies relates to the relationship of the company with buyers. Penetrating pricing strategy is to put them at a low or very low level. The opposite of this strategy is a selective price strategy where prices are kept at a high level.

  • Adaptive or innovative strategy

The second group of pricing strategies is based on the company's relationship with its competitors. On this basis, we distinguish two strategies: adaptive, which consists in adjusting the prices of the offered products to the prices offered by the competition, and innovative, in which there is no specific direction. It may be based on activities aimed at avoiding competition, taking the initiative in creating new processes or reacting to changes in the market in a manner opposite to the adaptation strategy.

  • Price-quality strategy

The last category of the strategy is focused on the relation of price to other marketing instruments. The price-quality strategy is guided by the relationships between them and other marketing instruments of the company, which can be changed and their quality level regulated. The last of the mentioned strategies: price and promotion, consists in linking the price with other marketing instruments (in particular with promotion and advertising).

Product price - factors and decisions that shape it

The price of the product must guarantee producers and sellers a return on investment in the product and a profit. On the part of the manufacturer, the decision to determine the price of the product is influenced by the goals of the price policy, marketing goals, costs and the marketing mix assumptions. External factors influencing the decision to set a price include its acceptance by buyers, distributors' expectations, competition, as well as legal norms and regulations. The price of the product should be based on the analysis of all these aspects. Moreover, its determination should be supported by the knowledge of many factors influencing its final shape.

The factors influencing the price formation include:

  • product (its features and functionality),

  • segment of the market,

  • buyers' reactions to the price,

  • competition,

  • production and sales costs,

  • supply and demand,

  • the concept of justified costs (it consists in determining prices in relation to the planned market share, and then in providing the product with features that will correspond to the selected market share),

  • the market situation, the degree of risk and the amount of the intended profit,

  • marketing-mix strategy.

What else should you remember when setting prices?

  1. The low price of the product makes the product available to a wider group of buyers, but it may also suggest that the product is of poor quality.

  2. The high price of the product narrows the potential buyer group, but it is also necessary if we want to position the product as luxury.

  3. The price of the product must be in relation to other marketing-mix elegantists (product, distribution and promotion).

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Product price - the main methods of determining it

When determining the price of a product, it is necessary to know three elements: cost, demand and competition. Among the main methods of this process, we can distinguish the following:

  • the method of mark-up on the purchase price - consists in adding the standard profit determined by the enterprise to the purchase / production price of a given product;

  • target profit method - analogous to the above point, except that the expected rate of profit on the invested capital is added to the cost;

  • customer-perceived value method - the price of the product is determined through thorough market research to determine customer expectations;

  • value-based method - it consists in offering low, attractive prices for high-quality products, which is to persuade the customer to make a purchase decision;

  • imitation method - the point of reference for determining the price is the price offered by the competition;

  • the latent tender method - it consists in determining the price covering the costs and the expected profit of the enterprise, additionally, the probability of making a sale at this level is determined here. On this basis, the index is determined, the maximum value of which is to determine the price of the product.