• solution
• services
• supports

the best for your business

• Home
• Marketing
• Nonprofit
• Search
• Contact

The price

The price 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 expenses.
The price 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:

• Costs
• Competitors
• Customers income
• Psychological availability of the customer to pay a certain price.

In economic theory, 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 quantity.

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 possible price 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 international markets.
• 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 variable costs.
• 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, individual values).
• 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 competition.
• 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 advertising investments.