why is price important in marketing mix
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Pricing is one of the most important elements of the marketing mix, as it is the only element of the marketing mix, which generates a turnover for the organisation. The other 3 elements of the marketing mix are the variable cost for the organisation; Product - It costs to design and produce your products. Place - It costs to distribute your products. Promotion - It costs to promote your products. Price must support the other elements of the marketing mix. Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean lost sales for the organisation. Price is the only Marketing Mix variable that generates revenue. All the other variables viz. Product, Place, and Promotion incur costs. For any kind of transaction, an offering has a price for its value. Price goes by many names в rent, rate, fee, tuition, toll, fare, royalty, honorarium, etc. Price is the most flexible or easily changeable element of the marketing mix elements. A marketer can change the price without much investment in time as compared to making changes to the Product features, Promotion strategies, or distribution channels.
Price can be defined as quantifying (into Dollars, Pounds, Rupees, etc. ) the perceived value of an offering to the buyer at a particular time. Pricing includes setting of objectives, determining price flexibility, outlining strategies, finalising price, and controlling it depending on the challenges. Organisations have to rely on the managerial skills in the implementation and control of pricing strategies. Its success relies heavily on how the managerial staff monitors the response of customers and competitors. In developing countries, price is the major factor that drives sales. Pricing and price-wars among competitors is the biggest problem that an organisation faces. There are different ways in which organisations approach the final pricing decision. These decisions depend on competitors, costs, demand, perceived value, long term return on investment or short term return on investment, etc.
Role/ importance of pricing in marketing strategy- 1) Price in combination with promotion becomes a strong tool for influencing buyers to buy products. It interests the buyers and highlights the image of the brand to increase sales. Sometimes organisations focus on other marketing mix elements by keeping the price constant based on recovering costs at certain percentage. 2) Finalising price in combination with other marketing mix variables, sets guidelines and boundaries for management to set marketing strategies. 3) Pricing also determines standard of living. The lower the prices in the economy, the higher is the purchasing power in the hands of consumers. Price reflects purchasing power of the market. 4) Price is a strong weapon against competitors. 5) Price determines the profits on sales. It is a basis of generating profits. As it is the most flexible of the marketing mix variables, organisations exercise this freedom very often for defensive or offensive pricing strategies. 6) Price influences two types of management decisions.
First is setting price for a new product and second, adjusting the price of existing products basis the market situation, costs, etc. 7) Depending on the marketing program, organisations use Price in different ways в Demand oriented strategy, cost oriented strategy, competition oriented strategy, and also because of ethical constraints. 8) Price should be carefully set basis its combination with the other marketing mix variables. The price on a product affects the market of another product in the product line from the same manufacturer. For example, a soap priced similar to another soap from the same manufacturer which has different features will have impact on the sales of each other, and the customer will have difficult time in making a choice. Price setting should be according to the product features and should accompany strong promotional activities like discounts, education of product features, etc. 9) Price should be set in relation to the delivered value and perceived value of the product -Price also communicates the quality of the product.
If a product is priced very low and its features communicated are better than the competitor, the customers may think that the product has low quality. In such cases organisations have to invest heavily in promotional activities and communicate clearly highlighting the services associated like warranties, brand value, etc. 10) Prices should be set in coordination with distributors. Most organisations strive to give higher profit margins to distributors as the distributors like wholesalers and retailers too aggressively promote the products to consumers. 11) High promotional activities result in costs. Organisations have to set price basis the costs associated to advertising, public relations, etc. The organisations have to carefully analyse the promotional expenditure and decide if it will result in production and marketing economies of scale. This will reduce the unit cost and give freedom to make price changes.
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