Chapter summary image

HOW IMPORTANT ARE PRICING DECISIONS TO THE SUCCESS OF A BRAND (OR COMPANY)?

Price refers to the exchange value of a good or service in the marketplace. While price is only one component of the marketing mix it plays a key role, in combination with other mix components, in creating an image for a product or company. In Walmart's case, price is the focal point of the entire marketing strategy. Consumers perceive Walmart to offer lower prices and that's why they shop there. Higher prices also have an impact on a brand's image. Male consumers expect to pay much more for a suit at Harry Rosen. In both cases it is the combination of price and quality (a value proposition) that attracts customers to the brand.

WHAT FACTORS INFLUENCE THE PRICE DECISIONS AN ORGANIZATION MAKES FOR ITS PRODUCTS?

Several external factors must be considered, including the market structure the brand or company operates in (monopoly, oligopoly, monopolistic competition, or pure competition). In a monopoly, prices are regulated; in an oligopoly and monopolistic competition, an organization controls its pricing but the price is influenced by the intensity of competition.

Other factors that influence pricing decisions include consumer demand for the product, giving due consideration to profit expectations of distributors, production costs, and marketing costs. Finally, the organization's business objectives must be considered. Typically, an organization wants to maximize sales, profits, and return on investment. Raising prices, lowering prices, and simply being competitively priced will have an impact on achieving these objectives.

WHAT METHODOLOGIES DOES A MANAGER CONSIDER WHEN ESTABLISHING A SELLING PRICE?

Specific methods for calculating price include cost-based pricing, demand-based pricing, and competition-based pricing (competitive bidding). The method a firm uses is chosen according to the nature and degree of competition in the markets it operates in. Should an organization be known for innovative products, it may adopt a price skimming strategy in which a high price is charged for the product. In contrast, products of lesser quality or products that enter a market late will adopt a price penetration strategy whereby a low price is charged for the product.