Pricing strategy is a crucial part of the marketing mix, involving research into target markets, production costs, and competitor pricing. Discounts and financing options may also be included, and pricing should align with the company’s desired competitive positioning.
The role of pricing in the marketing mix is to define the pricing strategy that will best appeal to those within the company’s target market. When discussing this issue, product pricing, discounts, segmentation, and financing options are included. Setting a price involves determining what the target market is willing to pay, the costs of producing the product, and the charges charged by competitors.
Developing the pricing section of a company’s marketing mix strategy includes research into its target market. The business must determine what its customers are willing to pay, which can often be difficult if the product or service is unique or significantly different from what is currently being offered. If so, companies can use surveys and test marketing techniques to gain insight into what the optimal prices are.
The production cost of the product or service is also included in the price and determines the lower limit of which the price can be set. The selling price should always be higher than what it costs to make the product in order to make a profit. Marginal profit can be calculated to determine how much is made per item sold.
Pricing components in the marketing mix include not only the actual price of the product, but also discounts and financing availability for customers. For example, a business may find it best to segment its market to offer different pricing options. This often happens when software companies create home and business versions of their products, for example, with the business version having a higher price tag. If the company will offer discounted prices or opportunities for its customers to finance, the details should also be included in the marketing strategy.
Comparing pricing strategies with the competition can also be helpful. A company should determine on what basis it wants to compete, for example by becoming a price leader, offering the highest quality or becoming a luxury brand. After determining this, the company should then set its price appropriately relative to its competitors. For example, if the company wants to be positioned with the highest quality, it would not want to sell its product cheaper than others in the market.
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