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7.0Conclusion Summary
Tutor-Marked Assignment
Further Reading
1.0 INTRODUCTION
In this unit, we shal be covering the role of price in the marketing mix, for instance, what price is, how it can be used, and how it is set relative to such factors as product costs, market demand, and competitors' prices. In particular, we wil examine three major pricing — decision problems facing selers. These involve how to: (a) set prices for the first time, (b) modify a product's price over time and space to meet varying
circumstances and opportunities, and (c) initiate and respond to price.
2.0 OBJECTIVES
After studying this unit, you should be able to:
(i) Explain the meaning of price and its roles in the marketing mix:
(ii) Analyse the pricing process
(iii) List major pricing objectives and explain the purpose behind each type.
(iv) Describe demand curves and elasticity and discuss how marketers use these concepts to establish ranges of possible price points.
3.1 THE MEANING AND IMPORTANCE OF PRICE
Price is the amount of money and/or other items with utility needed to acquire a product (utility is an attribute that has the potential to satisfy wants). In this instance, therefore, price may involve more than money. Note that exchanging goods and/or services for other products in termed barter.
Prices can take on a number of assumed names as indicated in Table 1 below:
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Table 11.1: Other Names Assumed By Price
Assumed name Where applied or operational Tuition
Interest Rent
Fare Fee Retainer
Toll Salary Wage
Commission Dues
Premium Rate
Honorarium
Education Use of money
Use of living quarters, or a piece of equipment for a period of time.
Taxi ride or airline flight
Services for a physician or lawyer Lawyer's or Doctor's
Services over a period of time Travel on some high-ways
Services of an executive or other white — col ar worker Services of blue — col ar worker
Sales person's services
Membership in a union or a club Services of insurance companies Services of utilities
Service given by professionals.
From the various assumed price names in Table 11.1, you can see that price is significant to an economy, to an individual firm and in the mind of the consumer. We shal briefly examine
each of these situations.
3.1.1 IMPORTANCE OF PRICE TO THE ECONOMY
A product price influences wages, rent, interests, and profits. This means that a product's price influences the amounts paid for the factors of production, such as land, capital, and entrepreneurship. We can therefore say that price is a basic regulator of the economic system since it influences the al ocation of the factors of production. For instance, high wages attract labour, high interest rates at ract capital etc. As an al ocator of resources, price determines what wil be produced (i.e. supply), as well as who wil get the goods and
services produced (i.e. demand).
3.1.2 IMPORTANCE OF PRICE TO THE INDIVIDUAL FIRM
The lastsentence of 3.1.1 above clearly shows that a product's price is a major determinant of the
market demand for it. Hence price affects a firm's competitive position and its
market share. Consequently, price has a considerable bearing on a company's revenues and net profits. For example, it is through prices that money comes into an organization.However, several factors can limit how much effect pricing has on a company's marketing programme. For instance, factors such as differentiated product features, a favourable brand, high quality, convenience, or some combination of these may be more
important to consumers than price.
3.1.3 IMPORTANCE OF PRICE IN THE CONSUMER'S MIND In
some cases, some consumers' perceptions of product quality has a direct relationship with price. Hence, the higher the price, the better the quality is perceived to be. In actual fact a lot of people hold this view, especial y when they are economical y okay. This is the reason why some shoppers make price — quality judgments particularly when they lack other information about product quality. In addition, consumers' quality perceptions can also be influenced by such factors as store reputation and advertising.
3.2 THE ROLE OF PRICE IN THE MARKETING MIX
Price is the only element in the marketing mix that produces revenue. Al
other elements—product, promotion, and distribution are concerned with delivering value to the customer, and by so doing, they represent costs. Price is also one of the most flexible elements in the marketing mix. Unlike product features and channel commitments, price can be adjusted quickly. At the same time, pricing and price competition is the number one problem facing many firms. Observations have shown that many firms do not handle pricing well enough. The most common mistakes include:
(i) Pricing that is too cost oriented;
(ii) Prices that are not revised often enough to reflect market changes;
(iii) Pricing that does not take the rest of the marketing mix into account; and (iv) Prices that are not varied enough for different products, market segments, and
purchase occasions.
We shall be looking at the factors that must be considered when setting prices and at