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ScribdTranslationsConcepts and importance of price
Introduction
The key to success for any company is to seek customer satisfaction since the
it is the most important element of our organization, the sales of a company
depends on the interest that consumers have in the product and their ability and
willingness to buy it, unfortunately or fortunately the demands of the
clients grow day by day so all members of the organization and
especially the marketing staff must take into account the following
considerations: Where the product should be sold, what image is intended to be conveyed
that sale, what should be the promotional supports or advertising, how much should it be
to cost the buyers, etc.
There are factors that influence pricing from aspects
related to the product development such as price sensitivity from the
buyer which varies depending on the place where the product is offered, is very
Of course, price fixing is one of the most interesting and controversial topics in the
economic literature since many argue from the perspective of marketing
that the classical economic model of price setting today is
insufficient but it must be taken into account that marketing places greater emphasis on
how the price should be set and the impact that actions have on profits
taken, while economic theory tries to determine the effect of price on the
market behavior, therefore it is not certain whether the model of
Is the current fixation well-structured or is it insufficient as argued by the
market logos.
Development
From a formal point of view, we can define price as the number of units
Monetary amounts that a buyer must disburse to acquire a certain item.
amount of products, but from a marketing point of view it is much more
broadens as for them the price of the product includes the monetary units that the
buyer must disburse to acquire it and all the expenses and efforts in which
incurs in order to access it. Whatever the concept of price we want to take
we can consider that a product satisfies the customer when they perceive value in it
equal to or greater than the price you pay for it.
When it comes to a marketing policy, price appears as one of the elements.
main ones to achieve the objectives of this since the price presents a great
importance due to the following reasons:
Short-term instrument: Price is an instrument that can be acted upon.
speed, flexibility and usually has immediate effects
Powerful competitive instrument: Currently, it is a highly
dangerous as it can trigger a price war in any aspect of the
current economy.
Instrument that generates income: The benefits that are generated are calculated
subtracting total costs from the income and the income is obtained by multiplying the
units sold by the price
It has psychological repercussions on the consumer: This depends on sensitivity.
of the consumer in relation to the price which can vary depending on various factors both
external as well as internal
It is the only source of information available in many purchasing decisions: Many
Sometimes the only information the buyer has regarding the characteristics of the
the product or its quality is the price
Since we know the importance that price has in the economy, you must know and
consider the circumstances that lead to setting prices when setting them.
we can divide into 2 parts:
External factors:
1-Legal Framework: Although we live in an economy where freedom predominates
prices, certain limitations may sometimes be established that affect the
company
2-Market and competition: The freedom to set the price or the power one has over
it largely depends on the company's position in the market,
considering its competition and the degree of rivalry it has with one of them
Internal factors:
1-Company Objectives: The objectives of each company constitute a factor
decisive in the pricing process, which is divided into 3 types; objectives
oriented towards the benefit which is very unoperational in practice since
requires the company to know what the cost and demand functions are, the
sales-oriented objectives, which we must keep in mind that not always
the achievement of large sales volumes necessarily implies the attainment of
benefits and finally the image-oriented objectives where companies also
they can set the prices of their products trying to get consumers
a specific image of the products and their brands is formed
2-Multiple stakeholders: Not only pricing can affect your
clients but also to the various stakeholders such as: competitors
where it should be tried to anticipate the competition's reaction to the change of
price, intermediaries as price actions may be altered by the
distributors, shareholders, and workers who are the ones expecting higher returns or
remunerations if prices rise, suppliers where the selling price rises
they may demand a higher price for their supplies, creditors can see
a reduction in price if they estimate that a decrease will occur in the
entry, departmental directors of the company in the case of the commercial director
which will prefer low prices to increase sales, organizations of
consumers and users who will want to intervene in the pricing process and
finally, society in general where price increases are always unpopular for
them, but lowering prices can discredit or damage the company's image.
3-Cross elasticities: Any modification in the price of a product or service
you can alter the demand for another range of products offered.
4-Interaction between commercial instruments: The pricing of the sale must
take into account the remaining marketing policies as we already know there is a
intense relationship between product characteristics, the distribution system, and the type
of channel to choose influencing all of them in the price. For example, if we set it by the
the prestige of the product will require less selling effort from the channel, which
increases the choice of distributors to set the selling price, or
another way to fix it is through a distribution system where if the price is high,
The profit margins per unit sold will be higher and will allow for a sale.
major or exclusive
5-Difficulty in determining the demand response: If the elasticity of demand
Regarding the price, it could be determined and set without difficulty.
optimal, however this is practically impossible even when the elasticity the
we could measure accurately at some point, data would not be constant throughout
the demand curve
6-The costs and the product experience curve: If the total income obtained
they are one of the causes of the benefit, the costs are what lead to its completion
determination, as we already know, fixed costs are those that do not vary with the
production and sales volume and variable costs are the ones that vary directly
with the volume of the products sold and finally the sum of these two classes of
Fixed and variable costs are the total costs.
7-The product life cycle: The phase in which the product is in its cycle
of life can condition pricing policy, the products that are in stages
introduction and growth are usually acquired by the most consumers
market innovators, who tend to be less sensitive to this variable, to
as the product spends time in the market and enters the maturity phase
saturation, competition becomes tougher and demand becomes more sensitive to
price, which often forces a reduction in the product's price.
Once we have understood both the internal and external factors that influence
In pricing, it is of utmost importance to know the appropriate method for the
pricing, each company has a small margin of maneuver to set the
price of the product between a lower limit and an upper limit where the own
consumers limit the upper limit of this interval as it will not make sense that
the company markets a product whose price is too high since nobody goes
want to buy it, therefore the assessment by customers of the
product characteristics, competitor prices and costs are the
elements that set the margin of maneuver with which the price must be established.
When it comes to pricing a product, three methods can be used:
1- Cost-based method: These are the methods that are considered to be more objective and
just, and have a strong cultural and social roots, but from the perspective of
Marketing does not always result in the most effective ways to achieve the goals of the
organization. We can classify this method into 2 modalities: Cost methods
more margin and the target price method or the break-even threshold
2- Competency-based methods: In these methods, the reference for setting the
the price is for the performance of the competition more than the own costs or the
market behavior, in general companies will set a price similar to
established in the sector unless they have some advantage or disadvantage in quality,
availability, distribution or complementary services, a competitive situation
specifically constituted by the bidding or competition that takes place in construction and in the
public contracting, in which the company that offers the lowest bid wins the competition
as long as the stipulated conditions are met
3- Market or demand-based methods: Demand analysis studies
the relationship that exists between the prices of the products and the quantities that are
demand from consumers, when consumers are very
sensible to the price, a slight increase in the price of the product can provoke
very significant drops in sales and a small decrease can
to increase them, Nagle has identified nine factors that influence sensitivity
consumers regarding the price: Product differentiation, lack of
knowledge of substitute products, difficulty in evaluating quantities, proportion
from expenses to income, final profit, shared cost, product
complementary, price-quality effect and the ability to store it.