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The Pricing Component of the Marketing Mix
from:Price is the second P of marketing mix. It need not be discussed why price is important for the customers; but for the sellers, setting the right price is not only important but also quite challenging. The pricing of a product requires lot of considerations. It has to be high enough so that the customers do not doubt its quality, and low enough so as to remain within the reach of the target market buyers. There are numerous factors on which the prices depend.
We all have an idea that costs play a critical role in formulating the price strategy. Effective pricing decisions first consider the markets they want to serve, the price that those buyers can be convinced to pay, the quantity they will be able to sell at that price and the consequent relevant costs they must incur at that level of sales
Many changes such as costs due to external reasons like increase in the price of raw material etc directly affect the price of the produced item. This does not mean that the customer pays for it. It is not that all the increased cost is passed on to the customer. Rather, it affects the quantities the firm can profitably supply and the buyers it can profitably serve. Companies that price profitably make decisions on markets and quantities that they intend to serve based on the changes in costs.
Price and cost are closely related. Knowing cost does not mean simply computing the accounts data. The necessary understanding does beyond. Knowledge of how the changes in cost will affect the changes in price is very important. Relevant costs need to be identified. These are the costs that will directly affect the price. Sales can be improved in both the ways. One is by selling less of the product at higher price. Other is selling more of the product at lower price. There will be some costs that will remain constant over long periods of time. These costs are not considered while making a pricing decision.
A successful pricing strategy requires a smart study of the market. Sometimes, customers are willing to pay higher prices for the product. At these times, maximum profit can be gained for the company. At other times, profit may not be at a higher priority than beating competition or building a reputation. New pricing strategies are developed and user by managers every day. The goal is to keep the business profitable and keep the customers happy at the same time.
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