Price is one of the important variables in the marketing mix. Its importance has increased substantially over the years because of the environmental factors like recession, intensity in inter- firm rivalry and the customer becoming more aware of alternatives. Firms also have to educate customers on what to look for in the product & many of the buyers today use sophisticated methods in collecting information on suppliers just as the latter do. In order to arrive at the most acceptable price level, the marketer needs to have information on the three C’s– customers, competition & firm’s cost structure. It should be able to use this information to achieve its goals.
In the contemporary market environment characterized by increasing inter—firm rivalry, low or no government intervention in corporate decisions, improvements in communications & media and a growing concern to retain wholesalers & retailers to market the firm’s products, pricing decisions appear at the center-stage. Many marketers find difficulty in taking pricing decisions or justifying them to their customers.
Pricing is one of the important elements of marketing mix, but lately, it has come to occupy the center-stage in marketing wars. The reasons for this are:
- Product differentiation getting blunted: As technologies get standardized, differentiation among firms on the basis of the product is going to get blunted. More products & brands will transcend to a commodity situation.
- Intensity in inter-firm rivalry: The intensity in inter-firm rivalry increases as the entry & exit barriers in the industry are lowered. With an increase in this rivalry, we find that a firm’s cost of operation also increases as it now has to spend more money to lure the customers & the middlemen. It has to invest money in new product development (NPD).
- Matured products & Markets: When the products enter the maturity stage & the markets are also matured, the only way to differentiate various offers is on the basis of augmented service or price cuts. Many firms opt for the latter & then find their bottom lines getting eroded.
- Customers Value Perception: Another factor contributing to the importance of pricing decisions is the customer’s perception of the product’s current & potential value. To a customer, price always represents the product’s value. Many a time, the customer’s perception of the product value may not necessarily be in line with its price.
- Inflation in the Economy: Pricing decisions become important in the inflationary economy. Inflation affects pricing in two ways-one, it lowers the purchasing power of the customer & hence a search for low priced substitutes, and too, it increases a firm’s costs because of the inputs costing more, thus forcing the price of the product upwards.