Price is one of the element of marketing mix, because it is the only element in marketing that create revenue other are costs. price is an integral part of marketing management .
Price in marketing is generally proposed by seller and the buyer then decide whether to accept it . It does not become a price until it is propose by one and accepted by the other.
However, the important of price can be viewed from two different angles, namely, its importance within the economy and its importance to the individual company.
Many people consider pricing to be the key activity within the free enterprise system of economy in that the market price of a product affect such things as profit, wages,interest,rent etc.
In other words, the price of a product has influence on the price paid for other factors of production. We can therefore conclude that price is a basic regulator of the free enterprise system of economy.
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Price also assume further importance within an economy during a period of inflation in that it affects the buyer behavior, as well as the consumer confidence in the economy.
Pricing have on your business is an increase or decrease in sales volume. Economists study price elasticity, or the response of consumer purchasing to a price change. Increasing your prices might lower your sales volume only slightly, helping you make up for decreased volume with higher total profits generated by higher margins.
Lowering your prices can increase your profits if your sales jump significantly, decreasing your overhead expense per unit. Test the market’s response to price increases by changing prices in targeted areas before instituting an across-the-board price increase.
A 5% improvement in pricing without volume loss and average margins can boost profits easily by 30% to 50%. You may already have a cost-cutting strategy in place in order to boost profits.
Important of pricing
- Pricing determines the market standard. The lower the prices in the economy, the higher is the purchasing power in the hands of consumers. Price reflects purchasing power of the market.
2. Price in combination with promotion becomes a strong tool for influencing buyers to buy products. It interests the buyers and highlights the image of the brand to increase sales. most time business owners focus on other marketing mix elements by keeping the price constant based on recovering costs at certain percentage.
3. To fight against competitors in free economy system Price is design as a weapon
4. increasing and decreasing price can lead customers to be conditioned to anticipate price reductions and, consequently, withhold purchase until the price reduction occurs again.
5 .Additionally, the price you set affects your profit margin per unit sold, with higher prices giving you a higher profit per item if you don’t lose sales. However, higher prices that lead to lower sales volumes can decrease, or wipe out, your profits, because your overhead costs per unit increase as you sell fewer units.
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6 To sum up, the price you set makes you more or less competitive in the marketplace, affecting your share of the market’s volume. Some businesses lower prices temporarily to gain market share from competitors, who can’t respond to and meet a price decrease. After consumers have had time to try your product and develop a brand preference or loyalty, you can raise your prices again to a level that won’t cause them to leave you.