Pricing decisions

?

23.1 How important are decisions about price?

Price is one of the main links between the customer (demand) and the producer (supply). It gives messages to consumers about product quality and is fundamental to a firm's revenues and profit margins. As part of the marketing mix it is fundamental to most consumer buying decisions. The importance of proce to the customer will depend on several factors.

Customer sensitivity to price:

Consumers have an idea of the correct price for a product. They balance price with other considerations. These include:

  • The quality of the product - Products seen as having higher quality can carry a price premium; this may be real or percieved quality.
  • How much consumers want the product - All purchases; customers will pay more for goods they need or want.
  • Consumers' income - Consumers buy products within their income range; consumers with more disposable income are less concverned about price. Uncertainty about future income will have the same effect as lower income. If interest rates ar ehigh, hard-pressed homebuyers will be much more sensitive to price; they need to save money and so they check proces more carefully and avoid high-priced items.

The level of competitive activity:

The fiercer the competition in a market, the more important price becomes. Customers have more choice, so they take more care to buy the best-value item. Whereas, a business with a strong monopoly position is able to charge higher prices.

The availability of the product:

If the product is readily available, consumers are more price-concious. they know they can go elsewhere and find the same product - perhaps cheaper. Scarcity removes some of the barriers to price. This is why perfume companies such as Chanel try to keep their products out of supermarkets and stores like Superdrug,

23.2 Price determines business revenue

Pricing is important to the business. Unlike the other ingredients in the marketing mis is related directly to revenue through the formula.

If the price is not right the busienss could:

  • lose customers: if the price is too high, sales may slump and therefore revenue will be lost. It will depend on the price elasticity of the product. If goods remain unsold, the costs of production will nor be recovered. 
  • lose revenue: if the price is too low, sales may be high, but not enough to sompensate for the low revenue per profit.

Pricing involves a balance between being competitive and being profitable.

23.3 How do businesses decide what price to charge?

At certain times during a product's life cycle pricing is especially important. Incorrect pricing when the product is launched could cause the product to fail. At other stages in the product's life, pricing may be used to revive interest in

Comments

No comments have yet been made