is the only marketing
mix element that generates income, the rest of the elements causing
expenses or investments. The company recovers through price the
expenses caused by production, distribution and advertising
operations, resulting in profit if the income is greater than the
is also the most
flexible element of the marketing mix, it can be easily modified,
compared to the other variables. Also, it is the most noticeable for
the competitors who can react very prompt to any change.
On the other side, price flexibility is
limited by factors like:
- Customers income
- Psychological availability of the customer to pay a
, the price results from the demand-supply ratio on a
certain market, creating the balance on the market. Therefore,
confronting the demand and the supply, an equilibrium price
results, where the supplied quantity equals the demanded
But the market has
imbalances that cause the products to be traded at prices different
from the equilibrium price. For this reason, marketing uses the
concept, defined by:
- The possible price is the one accepted by the trade
participants. There are situations when different customers
accept to pay different prices for the same product.
- The possible price is not unique, but oscillates
between limits depending on the negotiation availability of the trade
participants, each agreeing on different price levels.
- The possible price contains much information –
the requested quantity, customer categories, customer income. On the
other side, the price offers the clients information about the product
quality, high quality products are associated with high prices.
- The possible price can be determined both internally and
externally. It is influenced by both internal competition and
- The possible price is dynamic, diverse and standardized.
It is dynamic because the price can be change according to market
conditions changes. Diversity results from different price levels from
different geographic regions or market segments. The price must also
comply with the laws and standards at a certain moment.
When determining the
price, the following should be considered:
- Achieving the desired profit level – setting the price
begins with analyzing the profitability rates based on fixed and
- Analyzing customer behavior – as a base for determining
the possible price, considering that some people accept higher prices
for different psychological reasons (social status, group affiliation,
- Demand estimation – calculating the demanded quantity for
different price levels. The demand elasticity for different product
categories should be considered.
- Anticipating competitors' reaction – the prices should be
adjusted to competitors' prices so that the customers don't choose the
- The desired market share – low prices can be used for a
short period in order to increase the market share that could
considerably diminish the profits.
- Decision makers' objectives – determining the price must
follow guidelines set by the company management or shareholders.
- Correlating the price with the other marketing mix elements.
The price depends mostly of the type of products sold and their
quality. Usually, products from the same category have higher prices if
the quality is higher. Also, the price depends on the distribution and