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Pricing
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Pricing
Pricing is the process whereby a business sets and displays the price at which it will sell its products and services and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the marketplace, competition, market condition, brand, and quality of the product.
Pricing is a fundamental aspect of product management and is one of the four Ps of the marketing mix, the other three aspects being product, promotion, and place. Price is the only revenue generating element among the four Ps, the rest being cost centers. However, the other Ps of marketing will contribute to decreasing price elasticity and so enable price increases to drive greater revenue and profits.
Pricing can be a manual or automatic process of applying prices to purchase and sales orders, based on factors such as a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, a combination of multiple orders or lines, and many others. An automated pricing system requires more setup and maintenance but may prevent pricing errors. The needs of the consumer can be converted into demand only if the consumer has the willingness and capacity to buy the product. Thus, pricing is the most important concept in the field of marketing, it is used as a tactical decision in response to changing competitive, market and organizational situations.
The objectives of pricing should consider:
Price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product. Where manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns, then prices are likely to be higher. Price can act as a substitute for product quality, effective promotions, or an energetic selling effort by distributors in certain markets.
From the marketer's point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer's economic surplus to the producer. A good pricing strategy would be the one that could balance between the price floor (the price below which the organization ends up in losses) and the price ceiling (the price by which the organization experiences a no-demand situation).
Pricing is not always seen as a strategic process. Greg Cudahy of Accenture observed in 2007 that for some businesses, "pricing is the last bastion of gut feel". Where pricing is strategic, marketers develop an overall pricing strategy which is consistent with the organization's mission and values. This pricing strategy typically becomes part of the company's overall long-term strategic plan. The strategy is designed to provide broad guidance for price-setters and ensures that the pricing strategy is consistent with other elements of the marketing plan. While the actual price of goods or services may vary in response to different conditions, the broad approach to pricing (i.e., the pricing strategy) remains a constant for the planning outlook period which is typically 3–5 years, but in some industries may be a longer period of 7–10 years. The pricing strategy established the overall, long-term goals of the pricing function, without specifying an actual price-point.
Broadly, there are six approaches to pricing strategy mentioned in the marketing literature:
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Pricing
Pricing is the process whereby a business sets and displays the price at which it will sell its products and services and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the marketplace, competition, market condition, brand, and quality of the product.
Pricing is a fundamental aspect of product management and is one of the four Ps of the marketing mix, the other three aspects being product, promotion, and place. Price is the only revenue generating element among the four Ps, the rest being cost centers. However, the other Ps of marketing will contribute to decreasing price elasticity and so enable price increases to drive greater revenue and profits.
Pricing can be a manual or automatic process of applying prices to purchase and sales orders, based on factors such as a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, a combination of multiple orders or lines, and many others. An automated pricing system requires more setup and maintenance but may prevent pricing errors. The needs of the consumer can be converted into demand only if the consumer has the willingness and capacity to buy the product. Thus, pricing is the most important concept in the field of marketing, it is used as a tactical decision in response to changing competitive, market and organizational situations.
The objectives of pricing should consider:
Price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product. Where manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns, then prices are likely to be higher. Price can act as a substitute for product quality, effective promotions, or an energetic selling effort by distributors in certain markets.
From the marketer's point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer's economic surplus to the producer. A good pricing strategy would be the one that could balance between the price floor (the price below which the organization ends up in losses) and the price ceiling (the price by which the organization experiences a no-demand situation).
Pricing is not always seen as a strategic process. Greg Cudahy of Accenture observed in 2007 that for some businesses, "pricing is the last bastion of gut feel". Where pricing is strategic, marketers develop an overall pricing strategy which is consistent with the organization's mission and values. This pricing strategy typically becomes part of the company's overall long-term strategic plan. The strategy is designed to provide broad guidance for price-setters and ensures that the pricing strategy is consistent with other elements of the marketing plan. While the actual price of goods or services may vary in response to different conditions, the broad approach to pricing (i.e., the pricing strategy) remains a constant for the planning outlook period which is typically 3–5 years, but in some industries may be a longer period of 7–10 years. The pricing strategy established the overall, long-term goals of the pricing function, without specifying an actual price-point.
Broadly, there are six approaches to pricing strategy mentioned in the marketing literature:
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