Marketing Mix Element: Price
Price is the third element of the marketing mix. It is the amount of money paid by the buyer to the seller in consideration of the purchase of a product or a service.
Price is the crucial element of the marketing mix because the consumer is price sensitive. The Law of demand states, if the price of a product is increased, its demand comes down and vice-versa.
For example, if the price of Pepsi is increased from 10 to 12, then the customer will start demanding coke which is still available at 10.
Price mix refers to important decisions related to fixing the price of the commodity.
Factors affecting price determination
There are some factors that are to be kept in mind while fixing price of a commodity or service:
1. Pricing Objectives
Marketers not only look at profit maximization as the objective while fixing the price of a commodity but also considers the following factors:
a. Obtaining market share leadership
If a firm’s objective is to obtain a larger share of the market. It will keep the price of the product at a lower level so that a greater number of people are attracted to purchase the product.
b. Surviving under competitive market
To survive in a competitive market, the form either should lower their prices by offering discounts or should promote its product on the basis of the quality, features offered.
c. Attaining product quality leadership
In this case, normally higher prices are charged to cover higher quality and higher costs of Research and Development (R&D).
2. Product Cost
This includes the costs of producing, distributing, and selling the product. The price of a product should be able to cover the total cost of the product. Total costs mean fixed cost and variable cost.
Fixed costs are fixed irrespective of the level of the output. For example, the rent of the factory, the salary of the permanent staff.
Variable cost varies with the level of production. For example, the cost of raw material, wages, etc.
The price of a product is fixed after calculating total cost.
3. Extent of competition in the market
Under this, the price is fixed according to the level of competition.
If the firm doesn’t face any competition, then it can enjoy complete freedom in fixing the price. Example, monopoly.
But when the competition is more than price is fixed according to the competitor. For example, Pepsi and coke have similar prices.
4. Customer’s demand and utilities
While fixing the price, it is dependent on the demand of the product or service.
When demand of the product is inelastic, then firm can fix higher prices. For example, in case of medicines prices are high.
When demand of the product is elastic, that is more substitutes are available, then price should be set low. For example, soaps, shampoo, etc.
If the product is offering higher utility, one can easily charge higher price as the customer is ready to pay high price, if he finds the product to be useful
5. Government and legal regulations
To protect the interest of the public against unfair practices in the field of price fixing. Government can intervene and regulate the price of the commodities. These commodities comes under essential commodities.
Essential commodities includes, medicines, LPG, etc.
Government can keep a check on the monopolists, so that, they dont charge unfair high prices.
6. Marketing method used
The price of the product also gets affected by various techniques of marketing used.
If a company is using intensive advertising to promote the sale of the product, then it will charge high prices.
Other marketing methods which affect prices are types of packing and distribution system.
You can read more topics related to business studies:
|What is marketing management?||Marketing Mix|
|The 5 marketing management philosophies||Marketing Mix- product|
|What are the functions of marketing management?||Packaging as an element of marketing mix|
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