The Importance of Price in the Marketing Mix - Essay Example

The importance of price in the marketing mix Importance and dependability of each component in the marketing mix There are four important basic components of marketing mix and these are product, place, promotion and price. These four have important relationship as far as understanding the price component is concerned. Product Any tangible physical offering including services are what encompassed the term called “product”. To perfectly define the quality and character of an offering, product is a perfect term to fit the definition. Product as one aspect of marketing mix integrates with it the design, physical features, packaging and associated services (Solomon and Stuart, 1997). Improving products or services offered are all covered in innovation. Innovation on products and services according to Kalyanaram and Gurumurthy (1998) is a good way to compete with other products especially for new entrants. Porter (1980) clearly pointed out that in order to outperform competitors it is important to consider cost control for it finally affects the outcome of the price of the product or service. Cost control can be especially monitored in the areas of construction of efficient-scale facilities, targeting cost control, tight cost and overhead control, avoidance of marginal customer accounts, minimisation of cost in Research and Development, service, sales force, advertising and so on. These in the end according to Porter will bring the company its competitive advantage. Porter therefore is suggesting overall cost leadership as important generic strategy. Price therefore is an important consideration in order to hold such competitive advantage. Price is the result of optimising costs in the production of products or services to be offered. Place Place refers to the channel of distribution within firms such as distribution channels, market coverage, specific channel members, inventory management, warehousing, distribution centers, order processing, transportation and reverse logistics which work together in order to get the product from producer to consumer (Solomon and Stuart, 1997). In the actual scenario, the price of the product increases as it passes through from one channel of distribution to another before it finally reaches to the customer. The channel of distribution therefore has an important impact to the pricing of products or offered services. The development of brand new channels of distribution in order to access new markets or have better penetration on existing ones is very important. Understanding new environment is very important so as not to risk the process (Kalyanaram and Gurumurthy, 1998). Promotion Promotion is simply the communication of information about the product in order to generate positive response from the target market (Solomon and Stuart, 1997). One way to effectively communicate information about the product is to look for new and promising geographic markets for products already existing in the market (Kalyanaram and Gurumurthy, 1998). This clearly points out for market expansion so as to widen the coverage of distribution of a certain product in a specific area. This makes a good strategy for market penetration. Promotion includes promotional strategy, advertising, personal selling and sales force, sales promotions, public relations and publicity and marketing communication budget. Promotion happens in a distribution channel where additional cost will be added to the product which at its final stage has an important contribution to the actual price of the offering. Price Price relates to the placing of value or specific amount that the consumer is willing to exchange so as to receive service or product in return. The price of a service or product is an important consideration prior to its availability in the market that a certain company wants to serve, and how it will be significantly looked at in the market (Solomon and Stuart, 1997). Kalyanaram and Gurumurthy (1998) explained that there is a need to reduce price of a certain product or service in order to penetrate an existing market. Reduced price attracts customers and will enable them to switch and try new products. As noticed, the point of Kalyanram and Gurumurthy (1998) does not only focus on price of products but all of the components of marketing mix. However, each consideration has certain degree of significance. Price seems to be the most important factor to be considered, followed by the other components of marketing mix such as product, place and finally promotion. Perception of price According to Solomon and Stuart (1997), consumers placed efforts on justifying the price based on the product’s features, important information making price highly associated with quality, style and suitability. In his study about the brands of beer with different qualities and prices McConnell (1968) found that price has important impact on the perception of the quality of the beer. Therefore, quality of the product is associated with its price. Promotions have significant impact to how consumers perceived the price of the product (Folkes and Wheat, 1995). The study of Folkes and Wheat found that there is an increase price perception on products offered on the context of rebate. Thus, it is important to consider that consumers at some point are trying to look at the context of how much savings are they going to receive from a certain product with certain corresponding price. It is therefore important to promote the product in the context of savings. Price therefore is an important aspect that tells something more about the product and other related marketing mix components from the point of view of customers and the company. Internal and external influences on pricing It is important to consider proper pricing prior to understanding its implications and eventually on generating opportunities and profits (Lancioni, 2005). There are important aspects that are affected in setting and implementing price and these included customers, products, cost recovery efforts, produce margin levels, customer retention, market share and domestic and international sales (Lancioni, 2005). Furthermore, there are several levels that need to be considered in pricing such as the influence of organisation on industrial pricing, factors affecting international pricing, the importance of pricing to control supply chain costs, the importance of information on pricing decisions, the impact of the internet and the significance of formulating a strategic pricing plan (Lancioni, 2005). Furthermore, as stated earlier, Porter pointed out that competition is a very important factor that influences the final price of the product in order to achieve competitive advantage in the marketplace. Pricing therefore is influenced by customers, existing related products and profitability consideration of the company. Pricing strategy In the market with different products and services offered, price in its simplest form is known as the actual amount of money that consumers are willing to give up to get a product or a service. In ancient times, the price was identified through a barter process taking place between sellers and purchasers. Today, there are various forms available on pricing methods and strategies It must involve suitable strategies in pricing new and existing products. In fact, different strategies in pricing new and existing products are widely available in the marketplace today. For instance, pricing a new product requires the business to either use market-penetration or price-skimming strategy. Establishing a low product price in order to attract potential customers is an integral part of market-penetration pricing strategy. On the other hand, the price-skimming strategy applies to establishing higher price for a product for the purpose of quickly recovering the cost of new product development. As an integral part of an organization’s entire goal, pricing objectives need to be essentially established. Pricing objectives require taking different forms which usually are profitability, volume, meeting the competition and prestige. Aside from the point of Kalyanaram and Gurumurthy, pricing strategy at some point is also aimed to discourage entry of new entrants (Utaka, 2008). This is manifested from the study of Utaka on pricing strategy in which limit pricing and prestige pricing can both allow the incumbent holder of products and services discouraged new entrants. Pricing strategy therefore is aimed to control the market. Pricing strategy therefore is a way to control and be on top of the competition in the marketplace. Flexibility of pricing Price is an important economic goal (McConnell and Brue, 1993). Since it is an economic goal then it must be a certain priority. Price as mentioned earlier sounds very flexible since it must be decided based on corporate objectives and customers’ needs. Pricing of product therefore must be designed with flexibility in order to meet both considerations of producers and consumers to meet them half way. References Folkes, V. and Wheat, R. D. (1995) “Consumers’ price perceptions of promoted products.” Journal of Retailing, Vol. 71(3): 317-328. Kalyanaram, G. and Gurumurthy (1998) ‘Market Entry Strategies: Pioneers Versus Late Arrivals’. [Online] http://www.wright.edu/~tdung/entry.pdf (Accessed: 16 August 2010). Lancionni, R. (2005) “Pricing issues in industrial marketing.” Industrial Marketing Management, Vol. 34(2): 111-114. McConnell, J. D. (1968) “Effect of pricing on perception of product quality.” Journal of Applied Psychology, Vol. 52(4): 331-334. McConnel, C. R. and Brue, S. (1993) Economics. 12th ed. USA: McGraw-Hill. Porter, M. E. (1980). Competitive Strategy. New York: Free Press. Solomon, M.R. & Stuart, E.W. (1997). Marketing: real people, real choices. Singapore: Prentice Hall. Utaka, A. (2008) “Pricing strategy, quality signaling, and entry deterrence.” International Journal of Industrial Organization, Vol. 26(4): 878-888. Read More