Management of Marketing: Price

Section: Understanding the Concept of Price in Marketing

Price refers to the amount of money that customers have to pay to purchase a product or service.
It is the only element of the marketing mix that generates revenue; all other elements represent costs.
Price can also communicate an item’s value to the consumer, impacting their buying decisions.

Section: Factors Affecting Pricing Decisions

There are numerous factors that can affect pricing decisions including cost of production, competitors’ prices, and the target market’s willingness to pay.
Other factors include the economic conditions (inflation, recession), government regulations, and company objectives (maximising profit, increasing market share, survival).

Section: Pricing Strategies

Penetration pricing, involves setting a low initial price to attract customers and gain market share, typically used for new product entries.
Skimming pricing is setting a high initial price for a unique product then gradually lowering the price as competition increases.
Competitive pricing involves setting a price based on what the competition is charging.

Section: The Role of Price in the Marketing Mix

Along with product, place, and promotion, price makes up one part of the marketing mix.
The price set for a product communicates to the market the company’s intended positioning for the product or brand.
It is crucial to ensure that the price aligns with other elements of the marketing mix to create a consistent brand image.

Section: Advantages and Disadvantages of Different Pricing Strategies

Penetration pricing tends to succeed when a firm has the capacity to produce large volumes but may lead to lower profit margins.
Skimming pricing can lead to high initial profits but may only be suitable for unique or innovative products and for markets where customers are not price sensitive.
Competitive pricing can help to draw customers away from rivals but doesn’t take into account a firm’s costs, potentially leading to a loss.

Section: Challenges in Price Management

Setting prices too high may deter customers, while setting them too low may undermine profitability or create an impression of low quality.
Firms must continuously monitor changes in cost, demand, or competition that could necessitate a change in the pricing strategy.
Firms also have to ensure their pricing practices abide by relevant laws and regulations to avoid legal implications.

Section: Price Changes in Response to Market Conditions

Firms may need to adjust prices in response to changes in the market, such as a change in demand, increased competition, or a shift in cost of materials.
Firms can also initiate price changes to improve profitability, to introduce a new product, or in response to a competitor’s pricing strategy.
In case of a price increase, firms may have to prepare for customer backlash or a drop in sales, hence clear communication and justifications might be necessary.