The importance of pricing within marketing campaigns can be the difference between a successful strategy or not, in basic terms as the general goal of marketing is to facilitate the relationship between the consumer and seller, pricing can obviously play a huge part in most industries. After all, with so much competition in many markets, the price may be the only element which customers differentiate between brands and companies.
Typically, there’s many different factors which influence the value of a product or service, this can include manufacturing costs, time restrictions, perceived quality, market positioning and so on.
Generally, a buyer’s interest in a product will come from their expectations and benefits which the product has to them, in their minds they must weigh up the benefits of a product with the exchange of money.
In most industries, price is a main element in the marketing mix because it relates directly to the generation of revenue. Many business owners and marketers use the
Profit = total revenue – total costs
equation to work out if their business and products are worthwhile in their market. Price of course affects a businesses profits in all sorts of ways, if you’re located at the lower end of a market, you need to sell more items than a brand at the top-end of the market. For example, a budget watch brand needs to sell more products than Rolex because of the huge difference in price between the two brands.
Of course, apart from the general costs of manufacturing products, the main element between a low-budget brand and a luxury brand is their marketing campaigns.
Typically, by pricing a product high, brands can emphasise the quality of a product and try to increase the prestige associated with its ownership. The lower the price, marketers attempt to emphasize a bargain and entice customers who go out of their way to save a small money.
In many cases, luxury brands are not engaging in price wars with other companies, they operating a model called “Nonprice competition” – this happens when a business decides not to focus on price and instead highlights individual product features, level of service, product quality, promotion, packaging, or other factors to distinguish its product from competing brands.
A key advantage of nonprice competition is that a business can build customer loyalty toward its brand. Equally from a marketer’s point of view, if the target audience prefers nonprice competition, they may not be easily attracted away by competing companies and brands.
However, budget brands are continually attempting to match or beat a competitor’s price. This means the winner will be the brand which can produce the product for the cheapest amount – if companies are producing similar products and selling at similar prices then the brand which can manufacture items for the lowest amount will be the most profitable in the long term.
Remember price competition isn’t always a bad thing, it gives marketers flexibility. They can adjust prices to account for changes in their costs or respond to changes in demand for the product. If competitors try to increase market share by cutting prices, a company challenging on a price basis can react quickly to such efforts.
Another thing many marketers need to think about is demand and price resistance, these types of elements can easily challenge the effectiveness of marketing campaigns and a products pricing.
Defining the demand for a product is the responsibility of the marketing team, who are assisted by research and forecasting techniques, which can produce estimates of sales potential, or the quantity of a product that could be sold during a certain period. For example, if you own a jewellery company there may be a higher demand for products around valentine’s day.
It’s important to remember that for a lot of products, the quantity demanded by consumers goes up as the price goes down, and the quality demanded also goes up as the price goes down.
A good example of this is Televisions, the market become flooded with HD and LCD TV’s from manufacturers across the world, this meant TV brands had to reduce their prices to compete with other companies, however, to make themselves different from rivals, they added more features, so the demand for quality by customers increase – marketers then used these new features to market their products more efficiently.
Equally demand can also drive prices up, the lower the quantity of products, the higher the prices can be. It’s the marketing campaign which generates the buzz around elite items such as this. Prestige products, such as particular perfumes and jewellery, tend to sell better at higher prices than at lower ones, mainly because their marketing campaigns have created a sense of luxury attached to them.
However, you need to remember If the price goes too high, the quantity demanded goes down, meaning a business could make less money. This is where research into market trends and target audience comes into play.
If marketers and business owners can determine the price resistance of demand, setting a price is much easier. By examining total revenues as prices change, marketers can determine whether a product is price elastic – thus is the product priced correctly or whether the price needs changing for the market its targeting.
On the contrary price resistance can also work the other way, meaning the price can change but consumers need that product or service as part of their everyday lives, so they pay the difference. This can be seen in gasoline pricing and train fairs. As people must drive to work or get the train, although the prices are higher, they require the product or service, so they pay the money.