Pricing is an important element of the 4Ps of marketing. Generally, the price for products is set as low as possible to gain market share. Or, in some instances, marketers will charge a premium price to set their product/s apart from the competition. A high priced product sets a high standard by declaring to the world that only a select few can afford it.
Pricing also takes into account the following:
- Variable and fixed costs
- Competition
- Company goals and objectives
- Groups targeted and their willingness to pay
- Positioning strategies
When prices are set low and demand increases, marketers will typically raise prices to increase profits. Then, there are companies that will offer deep discounts in the hope of land grabbing a large number of consumers to make it all worth their while. An example would be cable and satellite TV companies that offer discounts, or premiums, depending on what types of events are being offered. Consider the following pricing elements of the marketing mix.
- Economy pricing keeps costs to a minimum. This type of pricing is typically found in supermarket products and budget travel industry tickets. Such pricing may work when business wanes, and will usually lift when business picks up.
- Price skimming may occur when companies charge a higher price because it has a competitive position in the market. However, such advantages aren’t always sustainable. Higher prices tend to attract new players into the market that can afford the product. Once supply peaks, prices will fall. This is usually the case for any industry.
- Consumers tend to respond emotionally and psychologically at times. As such, consumers will use price as an indicator of value in both familiar and unfamiliar markets. Marketers tend to set prices on the low end, middle, and on the top end. Consumers also tend to determine quality by the price attached to a product.
- Prices are sometimes set along a line or range of offerings. Each offering presents more and charges a higher price. However, each level has to offer a product that is relevant to what consumers expect at that level. Pricing should be on par as well.
- Once customers rev up their buying patterns, some companies raise their prices to cash in the buying frenzy.
- Optional pricing is another tool that some marketers use by adding options to their packages. You’ll find this happens a lot in the travel and transportation industry.
- When consumers have access to products where there are few choices and it’s a critical product, marketers can charge a premium price. Another example is where consumers buy a product at a low price, but will need to buy additional product because they have no other choice.
- Promotional pricing can also include things like buy one get one free, or money vouchers and discounts. Sometimes, promotional pricing creates controversy due to laws that govern how long products can remain at promotional prices.
Determining the Right Price
Setting the right price can be a task fraught with peril. You can be so busy trying to raise overall company sales that you start the price at a level your target market can’t afford. On the other hand, you can price your product so low that your target market looks at it as cheap and beneath them. These two scenarios raise the possibility of having the price too high and then lowering it, or vice versa, which can leave customers feeling cheated.
So how do you determine the right price?
If you guessed the answer to be market research and analysis, you guessed correctly. Do your due diligence. Find out what the market can bear, and how your target market reacts to various prices. Never rush pricing decisions, as revenue is always at stake. Spend the necessary time to make sure you know what your product is worth to your audience. After all, your product or service is only worth what people are willing to pay.
Thank you for following our Marketing Mix series. Stay tuned for our final installment, Placement: Where Does Your Product Belong in the Marketing Mix?