Pricing - Research Paper Example

Pricing Table of Contents Importance of Pricing 3 Factors influencing price 4 Distribution 7 References 8 Bibliography 10 Importance of Pricing According to John Andrew Davis, “price is the monetary value associated with the product and it is the driver of company revenues.” (Davis, 2009). Charles W. Lamb, Joseph F. Hair and Carl McDaniel believe that price is something “which is given up in an exchange to acquire a good or service.” (Lamb, Hair, & McDaniel, 2007). Price of a product or service is very important to both seller and customer. Usually customers see price as the cost of product or service, whereas seller consider as the revenue. The logic is simple for the sellers – revenue increases with the increase in price or volume of sales. In reality price remains vague as all the details related to it are never spelt out. Theoretically price is one of the most important Ps among the four Ps of product marketing. Inclusion of price in the marketing mix (four Ps) signifies the importance of it in the world of marketing. The marketing process is incomplete without proper adoption and implementation of pricing strategy. Prices are established in order to cover the costs and make some profit which is the ultimate objective of any company. In other words it can be said that price is very important because it brings the profit which is crucial for the survival of the company. It is often found that customers’ expectation regarding the quality of the product varies with the price. It is assumed that quality of the product increases with the increase in price. Marketers need to consider such assumption and give proper importance to the price aspect accordingly. Keeping the price low is a very common method of increasing market share. Now, increasing market share is one of the most important objectives of any organization and its need to be achieved in order to survive for a long time. Price has an important role to play in the process of achieving this objective and hence it is very important. Price is also crucial in the process of ‘market skimming’. When the first High Definition Television was introduced by Sony, it was priced very high ($43,000). The objective was to earn as much revenue as possible. As years passed by, price was declined (Kotler, & Keller, 2006). The important fact is that entire strategy was developed keeping ‘price’ at the centre. So, overall it can be said that ‘price’ is certainly one of the most important factors in business. Factors influencing price There are various factors that can affect or influence the decisions regarding pricing. These factors can be classified into two different categories which are external factors and internal factors (Middle East Technical University, n.d.). Important internal factors are described below. Marketing and corporate objectives of the organization Pricing decisions are taken based on the marketing and corporate objectives of the company. For example if the objective is to increase the market share then price is likely to be kept as low as possible in order to attract more and more target customers. Basic features of the product Pricing strategies also depend on the features of the product. If a product has some unique and innovative features, organizations can afford to charge high price. Customers are also expected to pay high price while the product is having excellent features. Costs of production and marketing One of the main objectives of charging price is to cover the costs of production and marketing. It is quite expected that when the cost is high price will be kept high. The image sought after by the organization through pricing Sometimes it happen that organization tries to change its image in the market through its pricing policies. Starbucks always charge high price to present it as a premium brand, whereas Wal-Mart always charge low price because the company wants to be renowned as a low-price retailer. Turn around rate and usage pattern of the product Price of a product also depends on the turn around rate and usage pattern of the product. There are products that are used once in a year, whereas there are products that are used on a daily basis. Based on such usage pattern organizations decide the pricing strategy. Stage on product life cycle Each and every product goes through a life cycle which includes four phases. These are introduction, growth, maturity and decline. Different pricing policies are adopted for different phases. Other Ps in the marketing mix Pricing decisions are also dependent on three other Ps of marketing mix. These three Ps are product, promotion and place. Along with these internal factors there are several external factors that affect strategies and decisions regarding pricing. These external factors are explained below. Characteristics of the market Economic environment greatly influence the pricing decisions. Factors like demand and supply are having great impact over the business of an organization. If demand of the product is high price is expected to be high. Consumer behaviour in case of a particular product Products are produced for the consumers; as a result their prices are also designed considering the behaviour pattern of consumers. Customers’ bargaining power Generally when customers have strong bargaining power, prices are kept low in order to satisfy customers. Pricing strategy of competitors Competitors’ pricing policies greatly influence the decisions regarding price of a particular product. If competitors are selling the product at a low price, it is safe for the organization to keep the price as low as possible unless the product is extremely differentiated from the competitors’ products. Influence of government Government often influence pricing polices by applying different taxes and rates. Customers’ purchasing power Customers’ purchasing power needs to be taken into consideration as the product will be ultimately purchased by the customers. If customers have high purchasing power, demand will automatically increase. As a result firms can charge high prices for their products (Kumar, N. et al. 2001). Distribution Distribution is one of the most crucial and most basic aspects of marketing. Roman G. Hiebing and Scott W. Cooper define distribution as “the transmission of goods and services from the producer or seller to the user.” (Hiebing, & Cooper, 2004). In other words distribution is referred to the process through which products reach from the producer to the final customer. Distribution is found to be the most challenging and complex part of marketing. There are large numbers people and activities that are associated with the distribution process. Huge amount of money is spent to make the distribution process more effective and more efficient. It is found that almost half of the total marketing budget in case of most of products is spent on distribution. Distribution is an old concept. It is older than the concept of marketing itself. Distribution function involves the determination of the best procedures and methods so that target customers can conveniently locate, acquire and use the products. It is found that when there is no problem in the distribution system; consumers do not realize the importance of it as they receive the products and services at well and good condition at a reasonable price. However when there is some problem in the distribution system, importance of it is actually realized by the consumers. This is mainly because problem in distribution leads to lack of availability of products and hence price of the products is also increased. Such situations badly affect consumers and help them to understand the importance of distribution (Burrow, 2008). Distribution is an important part of marketing mix and it is important in case of any types of products. When marketers make any decision regarding distribution the importance remains on the effectiveness and efficiency of the process. An effective distribution system should be able to deliver the products to the right place in the right condition and in the right amount (Christ, 2008). On the other hand an efficient distribution system should be able to deliver the goods at the right price at the right time. Distribution is important because it has great impact over the three Ps of marketing mix. First of all a product will not be able to reach to the final customer without distribution. Distribution process influences the price of a product. If it involves more cost, price of the product will be higher. Promotion depends on the way the product is distributed. If the product is distributed through direct channels, promotion will be done differently, whereas if indirect channel is involved in the distribution, promotion will be done accordingly. References Burrow, J. L. 2008, Marketing, Cengage Learning Christ, P. 2008, KnowThis: Marketing Basics, KnowThis Media Davis, J. A. 2009, Competitive Success, How Branding Adds Value, John Wiley and Sons Hiebing, R. G. & Cooper, S. W. 2004, The one-day marketing plan: organizing and completing a plan that works, McGraw-Hill Professional Kumar, N. et al. 2001, Marketing Management, Anmol Publications PVT. LTD Kotler, P & Keller, K. L. 2006, Marketing Management, Pearson Lamb, C. W. Hair, J. F. & McDaniel, C. 2007, Marketing, Cengage Learning Middle East Technical University, No Date, Factors Affecting Price Decisions, Department of Business Administration, [Online] Available at: http://www.ba.metu.edu.tr/~cagli/ba5702/ppt/price.ppt [Accessed on April 18, 2010]. Bibliography Boone, L. E. & Kurtz, D. L. 1974, Contemporary marketing, Dryden Press Kotler, P. & Armstrong, G. 2009, Principles of Marketing, Pearson Pride, W. M. & Ferrell, O. C. 1983, Marketing: basic concepts and decisions, Houghton Mifflin Shaw, R. & Merrick, D. 2005, Marketing payback: is your marketing profitable?, Financial Times Prentice Hall Stanton, W. J. 1967, Fundamentals of marketing, McGraw-Hill Read More