The price mix involves detailed decisions a firm should make in order to fix a price of a product or service. Price is one of the important factors that make or break a business. So, to be able to take appropriate decisions one should consider each and every aspect related to it.
WHAT IS THE PRICE MIX?
We understood price as an important element and one of the 7P’s of the Marketing Mix.
Price mix refers to the decisions a company has to make related to the fixing of the price of a commodity, that is, a product or service.
These decisions include prices of the competitors, prices according to the demands of goods and services, production, government’s rules and regulations, etc.
It may seem sometimes but fixing price on goods and services is not an easy job. Many important factors are taken into consideration while fixing a monetary value to a commodity.
WHAT ARE PRICING OBJECTIVES?
For effective fixing of price, the objectives of the firm play an important factor. Mostly profit maximization is the main objective of every firm while deciding on the price.
But apart from profit, the pricing objectives of a firm may include-
- To obtain leadership in the market share – Usually, to obtain or capture a big portion or a big share in the target market, firms tend to keep their prices low. This helps in attracting more customers to purchase the products.
- To attain leadership in product quality – To obtain this objective usually, firms increase their prices to a good extent. Increment in the pricing is necessary to cover the high cost of research and development.
- To survive in a competitive market – In order to survive in the competitive market firms have to offer discounts and reduce prices.
WHAT ARE THE FACTORS AFFECTING THE PRICE MIX?
A firm should consider the following factors while fixing the price of a product or service:
The cost of the product should be fixed keeping in mind the total cost. Total cost here means the cost of the product as well as the cost of the production, that is, fixed cost and variable cost respectively.
Cost of product or the fixed cost includes rent of factory, cost of machinery, the salary of the staff.
And the cost of production or the variable cost includes the cost of the raw material, wages given to the labour, transportation costs, etc.
If a firm’s objective is to capture a big market share then it will lower its prices in that case, it should make sure that the price must include atleast the variable cost.
One of the important factors to have an effective price mix is to keep in mind the level of competition in the market. When a firm has no competitors in the target market then it is free to fix the desired price. But when there is more competition then the fixing of the price must be done keeping in mind the competitor’s prices on their products.
DEMAND AND UTILITY
When the demand for a product is inelastic, that means when there is very little or almost no substitutes for the product in the market, then the firm is free to fix high prices on that product.
But when demand is elastic, meaning there are some or more substitutes of the product in the market then the firm should fix low prices.
In the same way, if demand for a product is high, the prices can be high. But if the demand is low, prices must be low.
If the utility of a product is high firm can easily charge high prices as the customers will be ready to pay high prices. Whereas if the utility is low one cannot charge high prices.
MARKETING METHOD USED
Some marketing methods that affect the price mix are distribution system, salesman support, packaging type, etc.
Apart from these the most important marketing method that affects the price mix is advertising. If the company is using expensive advertising to promote a product then it will charge a high price.
GOVERNMENT AND LEGAL POLICIES
Government and legal intervention is also a very important factor in fixing prices. A number of restrictions are imposed by the government on pricing activities in order to protect the interest of the general public. Society’s welfare is important in the determination of price. Due to government intervention, there can be a check on such firms that charges unfairly high prices on legally categorized essential services.
All the aspects of fixing prices influence each other and together they influence the business and your firm’s reputation.
Price mix includes various factors ad parameters and as a marketer, one should have a thorough knowledge of these. Strategizing decisions and implementing them surely reflects good results in marketing.