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Pricing in economics

Deciding on how much to charge for a product or service is based on number of factors such as market considerations, inputs costs and marketing objectives among others. Price belongs to the important facets of the marketing mix, it is responsible for creating monetary value to the whole process, augmenting the production, promotion and place elements. It facilitates the sales and purchase processes through various considerations which are either automatic or manual, and these include multiple orders or lines, price prevailing on entry, shipment or invoice date, fixed amount, promotion or sales, quantity break, specific vendor quote and many more. A good price assists a company to realize its goals, it makes a product/service competitive; satisfies the needs and expectations of consumers. And in principle, a good price is a price that is very close to the highest that customers are still willing to pay or the price that draws much of the consumer's excess to the supplier.

And still there is a lot more that goes into a price including essential matters like transfer pricing considerations, price elasticity, price wars, price neutrality, joint product pricing, product quality and the price, production factors, real time pricing considerations, discount pricing, zone pricing and penetration pricing. Price is subject to the type of distribution channel chosen, promotions among others, and a more costly manufacturing and advertising process, or exclusive distribution the higher the selling price; while substituting product quality, promotions and sales can bring the selling price down for consumers benefit. A company can use a limited number of prices for all its product offerings, with the aim of making the prices seem appropriate at the carefully selected price points for multiple product ranges, although this works only under very stable market conditions.

Sometimes companies find it necessary to set prices below the viable margin/operating margin, even if it means no profits will accumulate to the items involved, but it is done to increase consumer traffic into a shop, and increasing the possibility of stimulating sales for other products on the shelves. On the other end, certain pricing strategies dictate the opposite in that perceptions of some consumers are that expensive products are of high quality, therefore marketers can attract them likewise. Some these consumers require flawless performance; they believe by purchasing high-end products it is a sign of self worth (e.g. buying a Bentley). The Goldilocks pricing involves the provision of a gold plated version of a product at a premium price in turn making the next lower priced product appear moderately priced.

Learn more about this author, George Chapungu.
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