Pricing decisions can have important consequences for the marketing organisation and the attention given by the marketer to pricing is just as important as the attention given to more recognizable other marketing activities.
Some reasons pricing is important include:
1. Most Flexible Marketing Mix Variable:
For marketers price is the most adjustable change, or some forms of promotion which can be time consuming to alter (e.g., television advertisement), but price can be changed very rapidly. To quickly stimulate demand or to respond to competitors, flexibility of pricing decisions is particularly important. To illustrate, a marketer can agree to a field salesperson’s request to lower price for a potential customer during a phone talk. Similarly, a marketer in charge of online-marketing may raise prices on hot selling products with the click of a few website buttons.
2. To Set the Right Price:
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Prices influence customers, and even during the boom customer does not forget of ‘reasonable price’. Apart from customers, the purchase executives for the firms also attach high priority to get a favourable price. Pricing decisions made in haste without sufficient research, analysis, and strategic evaluation can lead the marketing organisation to lose revenue. Too low prices may mean missing out on additional profits that could be earned if the target market is willing to spend more to acquire the product.
Additionally, attempts to raise an initially low priced product to a higher price may be met by customer resistance as they may feel the marketer is attempting to take advantage of their customers. On the other hand, setting too high prices may also impact revenue as it prevents interested customers from purchasing the product. Thus, the price has to be right.
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3. First Impression the Last Impression:
Often customers’ perception of a product is formed as early as they come to know about the price on seeing the product for the first time. If customers dismiss a product because of price, pricing may become the most important of all marketing decisions.
4. Price Creates Profits:
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The only source of income and of profit, i.e., top-line and bottom- line, for the most organisations is the price charged for the products from the customers. Without profit, the firm has no choice, but to exit the market as it fails to serve any of its stakeholders. “Pricing is extremely important because small changes in price can translate into huge improvements in profitability.” A small upward change in price can bring in big fortunes for the firm. Firms often keep the price higher to convey image of better quality. Please note that the basic purpose of branding a product is to decrease the price impact on the demand.
5. Price and Marketing Mix:
Price affects all elements of marketing mix. Product factors are related with pricing decisions. Not only price should cover all kinds of costs, but the price would also convey customers of product quality, status or prestige. The stage of product life cycle also influences the pricing. In the introductory phase the firm can charge premium pricing, but not during growth, maturity or decline.
While determining price the concerns of channel partners will have to be considered. Different costs incurred by them by way of displaying, warehousing, shipping, credit extension, etc. incurred by channel partners must be recoverable in the margin kept for them. Place and price will also show the kind of retailer selected. ‘Gitanjali’jewellery can’t be sold in a local shop.
Pricing is an important part of promotion, i.e., advertising and Sales Promotion. A heavy expenditure on advertising campaign for a perfume should clearly spell that the product has quality, luxury and status to convince shoppers. Many a times price adjustments are part of sales promotions that lower price for a short term to stimulate interest in the product.
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Marketers must guard against the temptation to adjust prices too frequently by increasing and decreasing price. It may lead customers to be conditioned to anticipate price reductions and, consequently, withhold purchase until the price reduction occurs again.
6. Basic Regulator of Economic system:
Wages, rent, interest, and profits in an economy are all influenced by price. High wages means luring labour, high interest rate means luring funds, high rent means luring land owners and other owners, and profits mean luring capital. It is the price which determines in an economy as to what is to be produced and who will be able to get it. Thus, price plays as a regulator of allocation of resources in an economy.