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MARKETING MANAGEMENT - Pricing Objectives and Approaches

Introduction of Pricing Objectives and Approaches

   Posted On :  18.06.2018 10:26 pm

Ancient philosophers recognized the importance of price in an economic system.

Introduction

Ancient philosophers recognized the importance of price in an economic system. Some early written accounts refer to attempts to determine fair and just prices. Price continues to serve as a means of regulating economic activity. All the four factors of production, viz. natural resources, capital, human resources and entrepreneurship, depends on the prices that those factors receive. An individual firm’s prices and the resulting purchases by its customers determine how much revenue the firm receives. Prices, therefore, influence a firm’s profits as well as its employment of the factors of production.
 
Traditionally, price has operated as the major determinant of buyer choice. This is still the case in the poorer economies and with commodity-type products. Although non-price factors have become more important in recent decades, price still remains one of the most important elements determining market share and profitability. Pricing has come to occupy center-stage in many marketing rivalries. Many reasons can be attributed to this. Some of them are outlined below:
 
1. In some cases, product differentiation is getting blunted, thanks to the homogenization of technology. This is more relevant in the context of global business where the million dollar question is whether the firms should offer a standardized offering or a differentiated offering.
 
2. There is intense inter-firm rivalry in some industries. It may be attributed to the removal of entry/exit barriers. Also the cost of fighting these marketing wars must be recovered and often, it is transferred to the customer.
 
3. In certain industries, the products and the markets are mature. The only way to differentiate may be is through an augmented service or price cuts. Here again, pricing decisions are crucial to the survival of the firm.
 
4. Customers’ value perception correlates with the quoted price. To a customer, price always represents product’s value. The price-quality perception must be taken into account during the product decision and the price decision.
 
5. Inflation in the economy may also contribute to the significance of pricing decision in a marketing program. It lowers customer’s purchasing power and increases input costs. As a result, the marketer has to make the price decision after careful evaluation. 
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