Why pricing is important in marketing mix

But those customers can understand what that product does for them in the way of providing value. It is on this basis that customers make decisions about the purchase of a product. Service providers may present you with a fee list as opposed to a price tag if you ask for the price of their services. You pay a price to fly, ride the bus and take the train.

The price in these industries is expressed as a fare. Pricing and the Marketing Mix : Pricing might not be as glamorous as promotion, but it is the most important decision a marketer can make. 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.

So, as you can see, it is important that a company sets the right price. Value is the worth of goods, and relative value is attractiveness measured in terms of utility of one good relative to another.

Value is the worth of goods and services as determined by markets. Thus, an important part of economics is the study of policies and activities for the generation and transfer of value within markets in the form of goods and services.

Often a measure for the worth of goods and services is units of currency such as the US Dollar. But, unlike the units of measurements in Physics such as seconds for time, there exists no absolute basis for standardizing the units for value. One of the most complicated and most often misunderstood parts of economy is the concept of value. One of the big problems is the large number of different types of values that seem to exist, such as exchange value, surplus value, and use value.

But then remember that it took economists more than a hundred years to figure it out: something is worth whatever you think it is worth. This statement needs some explanation. Take as an example two companies that are thinking of buying a new copying machine. One company does not think they will use a copying machine that much, but the other knows it will copy a lot of papers. This second company will be prepared to pay more for a copying machine than the first one.

They find a greater utility in the object. The companies also have a choice of models. The first company knows that many of the papers will need to be copied on both sides. The second company knows that very few of the papers it copies will need double- sided copying.

Of course, the second company will not pay much more for this feature, while the first company will. In this example, we see that a buyer will be prepared to pay more for the increase in utility compared to alternative products. So we can summarize this with the statement that the economic value of an item is set by the increase in utility for customers. This increase in utility is called marginal utility, and this is all known as the marginal theory of value.

But how does the seller value things? Well, in pretty much the same way. Of course, most sellers today do not intend to use the object he sells himself. The utility for the seller is not as an object of usage, but as a source of income. And here again it is marginal utility that comes in. For what price can you sell the object? If you put in some more work, can you get a higher price? Here we also get into the utility for resellers.

Lowering your prices can increase your profits if your sales jump significantly, decreasing your overhead expense per unit. The price you set sends a message to some consumers about your business, product or service, creating a perceived value.

This affects your brand, image or position in the marketplace. Predatory pricing is the practice of selling a product or service below cost for the specific purpose of taking market share away from a competitor or closing it down, then raising prices on consumers when they have fewer, or no options after that competitor is gone.

This is illegal. Some businesses price products or services at or below cost to get customers into their businesses, who then spend more money elsewhere. For example, big-box retailers might buy large quantities of tennis balls, selling them at or below cost to entice affluent tennis players who use many cans of balls during the year into their stores. Account Shopping cart Logout. Explore Business Business Search. Explore Blog Reference library Collections Shop. Jim Riley 19th December Share: Facebook Twitter Email Print page.

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