Marketing strategy covers corporate objectives of achieving high profitability through sale of products and services. These strategies are then translated into a marketing mix which is developed by business after careful consideration of the market conditions and situations. Decisions involving in the process of development of a marketing mix include those related to factors such as product, place, price and promotion (Gary). This short paper deals with how businesses decide upon a “right” price for either a product or service that is the amount of money customers may be willing to pay for buying one unit of that product or service.
It is important for businesses to devise a “right” price for their offering which would create sufficient demand for their products or services and at the same time generate high profitability for them. As suggested by Shapiro and Jackson there are three approaches to pricing that include cost based pricing, competitor-oriented pricing and market-led pricing (119:228). Companies select these approaches depending on their marketing strategy that they decide to follow. These strategies provide basis for pricing decisions of businesses as they reflect the overall corporate objectives and achievability of them. Such strategies include decisions regarding the targeted market and understanding of external factors which derive the demand of products or services. Thus, the positioning of the product in the market is perhaps the most important element which affects pricing of that product by the company. For example, a new product that is to be launched in a competitive market requires businesses to evaluate the current market conditions, presence and position of competitors and they need to align their initial promotional strategies to derive the right price for the product or service (Jobber and Fahy).
From customers’ perspective a right price for a product or service is mainly based on their assessment of perceived benefits they obtain from the use of the product or service. If customers believe that the price is below the sum of values of a product or service they consider such pricing to be right and it may induce repeated purchases and high levels of satisfaction or vice versa (Gary). Therefore, customers’ buying decision and considerations of right price are mainly driven from their perceived value for money or perception of privilege which customers may experience with the use of a product or service. It should also be understood that a right price of a particular group of customers may not be acceptable to others in a different market. Therefore, essence of subjectivity is present in evaluating a right price for a product or service.
It should also be understood that as market conditions change and customer begin to perceive different set of values to be higher than those associated with a particular product or service a price that was once considered as the right price will no longer be feasible and companies would surely need to reexamine their pricing strategies to adopt to these changes.
Thus, to conclude a right price of a product or service is matter of subjectivity which depends heavily on the strategy which a company may choose for its products or services. Furthermore, customers’ view of the perceived values of the product or service actually evaluate whether a price set by a business is justified and acceptable to them or not. Finally, assessment of a right price determines the future of a product or service and success or failure of the business.
Gary, Armstrong. Marketing An Introduction. New Dehli: Pearson Education India, 2008.
Jobber, David and John Fahy. Foundations of Marketing. New York: McGraw-Hill Higher Education, 2006.
Shapiro, D. B. and B. B. Jackson. “Industrial Pricing to Meet Consumer Needs.” Harvard Business Review (1978): 119-128.