The Importance of Price to Marketers
Since pricing has a direct impact on a company’s revenue, and thus profit, setting the right price is essential to a company’s success.
LEARNING OBJECTIVES
Discuss how pricing impacts marketing and business strategy
KEY TAKEAWAYS
Key Points
- Price is important to marketers because it represents marketers’ assessment of the value customers see in the product or service and are willing to pay for a product or service.
- Adjusting the price has a profound impact on the marketing strategy, and depending on the price elasticity of the product, it will often affect the demand and sales as well.
- Pricing contributes to how customers perceive a product or a service.
Key Terms
- value: a customer’s perception of relative price (the cost to own and use) and performance (quality)
- marketing mix: A business tool used in marketing products; often crucial when determining a product or brand’s unique selling point. Often synonymous with the four Ps: price, product, promotion, and place.
Pricing and the Marketing Mix: Pricing might not be as glamorous as promotion, but it is the most important decision a marketer can make.
Price is important to marketers because it represents marketers’ assessment of the value customers see in the product or service and are willing to pay for a product or service. The other elements of the marketing mix (product, place and promotion ) may seem to be more glamorous than price, and thus get more attention, but determining the price of a product or service is actually one of the most important management decisions. Here’s why.
- While product, place and promotion affect costs, price is the only element that affects revenues, and thus, a business’s profits. Price can lead to a firm’s survival or demise.
- Adjusting the price has a profound impact on the marketing strategy, and depending on the price elasticity of the product, it will often affect the demand and sales as well. Both a price that is too high and one that is too low can limit growth. The wrong price can also negatively influence sales and cash flow.
- Problems occur if the marketer fails to set a price that complements the other elements of the marketing mix and the business objectives, as pricing contributes to how customers perceive a product or a service. A high price indicates high quality. The term luxury comes to mind. If, however, a firm wants to position itself as a low-cost provider, it will charge low prices. Just as they do with high-end providers, consumers know what to expect when they see low prices.
So, as you can see, it is important that a company sets the right price. A company’s success can depend on it. However, with so many factors to consider along with the lack of a crystal ball that will show the effect of a price change, It isn’t so easy to do.