Price is the amount of money that we must sacrifice to achieve something that we desire. Price is the only thing that generates money. There are no other things that generate money.
From the customer viewpoint, the price is a monetary expression of the value of dimensions of quality or features compare to other products. The price relation can be expressed as –
- Price= Quality/ Value
In the marketplace, the price is viewed as the payment for the quality of a product.
From the psychological standpoint, the price represents a quantitative estimate or subjective image of the benefits from a selection of a group of product features.
A marketplace offers a bundle of features of valuable products or services. This bundle may include physical or performance features. These features are the reliability of the product, convenience of use, the flexibility of use, and aesthetics of appearance.
The importance of pricing in an organization
Price is the most visible thing. It directly impacts a firm’s performance in the market. Based on the nature of the business, success is always measured by the extent of revenues from sales. Ideally, a set of prices will ensure the highest margin consistent with the volume consideration. Besides, it considers customer evaluations of products, responds to competitive threats, and predicts all competitive inroads.
Pricing may face complexities and changes in the marketplace in turn to marketing. Because of globalization, demographic changes in customers, shifts in public policy, and technological changes may influence the marketplace to make it more difficult to do business.
Higher competition may ensure higher customer satisfaction. Because of competition, all producers must ensure a higher quality than the trade partners. That’s why they charge a higher price for their products. They also provide greater customer loyalty and reduce their marketing costs.
Some people believe that the marketplace set the price. So they have no control over it. That’s why; they try to cut their internal cost. The reduction of internal costs helps them to get higher profit margins. This is possible only to some extent like product quality, product performance, customer satisfaction, and charge a small amount of price in the marketplace.
To make a higher profit, we must reduce costs in producing a product. It is true that the pricing decision does not depend on the competing price or differentiated products. It depends on a growing number of ongoing interactions between the firms. Have a look-
- Products and services of the firms
- Target customers
- Adopt different effective approaches
- Unique product
- Quality variations
For example, Dell computer has obtained a positional advantage with low prices. Besides, Maytag and federal express have successfully used differentiation and command a substantial premium over industry rivals.
How can pricing help an organization?
Successful pricing can work as a bridge to fulfill a gap between internal and external market demand. This demand helped to achieve a positional advantage in the marketplace. Primarily, a firm charges the optimum price for its product. It helps a firm long-term probability to sustain itself in the marketplace. Moreover, a firm can adopt a strategic option for its betterment in the marketplace. The strategic options ar look like this-
- The cost structure of the firm
- The competitive status of the firm
- Marketing strategies (based on competition)
- Organizational capabilities