A Study on Price

Price is a fixed amount of money that a consumer pays for a specific product or service. The price for a product or service is set on the basis of the cost spent in manufacturing that product by the company. The price of a product decides what margin of profit it will give to the manufacturer. Pricing is one of the most important business decisions that are to be taken by a seller under the concept of price. Moreover, in the marketing mix, there are 4 Ps that are product, place, promotion, and pricing, however, pricing directly affects the profitability of a business entity. Therefore, pricing should be done properly as well as carefully.

In addition, the pricing of a product or service should be consistent with other components of the marketing mix as it adds to the perception of a product or any service by the consumers. Furthermore, the concept of price states that setting the price too low or too high will directly affect the sustainability of the business, therefore, it should complement all the factors of the product and the pricing should be done with respect to the target audience and competitors in the market. Wrong pricing can cause major complications in the sales of a product which will then affect the cash flow of the business.

Factors that Affect the Determination of Price

There are several factors that affect the pricing decision or the concept of price for a product or service and these are as follows:

Product Cost – The cost of the product is one of the most important factors which can affect the price of the product or service. The cost of the product includes production cost, distribution cost, as well as selling cost. Generally, there are three types of cost which are fixed costs, variable costs, and semi-variable costs. The producer should at least cover the variable cost for getting the marginal profit from that specific product.

The Utility and Demand – The seller should consider the demand and utility for the product before finalising the price of the product or service. Demand sets the upper limit of price as well as the cost of the product sets the minimum limit of price.

The extent of Competition in the Market – Competition is also an important factor to consider before the pricing of a product or service. If the product is having close competitors selling similar products at a specific price then the pricing should not be set high, and if so happens, the consumers will shift to the substitute product in their budget.

Government and Legal Regulations – In order to protect the rights of the consumers, the government can interfere in the pricing of a product so that it doesn’t go too high and becomes unaffordable for the consumers. The government has the right to declare a product as an essential commodity and then regulate the price of that product or service. Moreover, the government can also set a limit for the pricing of products so that the seller sets the price within the provided limits.

Pricing Strategies

The sellers of various products and services develop a strategy for pricing which stays consistent with the values as well as the mission of the business entity. Moreover, the pricing strategy becomes part of the long-term strategic plan of a business entity. The strategy helps in offering broad guidance for the price-setters and makes sure that the strategy is consistent with other components of the marketing mix.

Mostly, there are 6 approaches to the pricing strategy present in the marketing literature which is as follows:

Operations-oriented Pricing

In this type of pricing, the main focus is on the optimization of the production capacity. It is done to achieve operational effectiveness or to equal supply and demand by making prices differ from each other.

Revenue-oriented Pricing

In this type of pricing, the seller wants to earn the maximum profit generated from the revenue and also wants to cover all the costs from it.

Customer-oriented Pricing

In this type of pricing, the aim is to gain the maximum number of customers and to encourage opportunities for cross-selling.

Value-based Pricing

In this type of pricing, the seller uses the pricing to signal the market value. It helps in maintaining the luxury image of the product and the brand so that the customers feel that the product has a higher brand and product value.

Relationship-oriented Pricing

In this type of pricing, the seller tries to maintain relations with existing and potential customers.

Socially-oriented Pricing

In this type of pricing, the seller tries to discourage or encourage some particular social behaviours and attitudes.

Conclusion

A study on price study material overall concludes that the concept of price or pricing is a very essential element of the marketing mix. When a seller decides to sell a particular product or service then pricing plays an important role in the success or failure of that product. There are various types of pricing and their strategies that help the seller achieve multiple objectives according to the needs of the business entity. The pricing should be done carefully as well as it should be moderate, not so minimum, and not even too high. Moreover, there are various factors determining the price of a product.