Price can be defined as the exchange of goods or services in terms of money. It is a crucial aspect of marketing in society and is essential for conducting transactions. For a manufacturer, price represents the quantity of money (or goods and services in a barter trade) received for the goods or services that they offer. On the other hand, for a customer, price represents the sacrifice that they make and their perception of the value of the product.
The concept of price can be expressed as:
Price = Quantity of money received by the seller/Quantity of goods and services rendered received by the buyer
Differentiating between Price and Pricing
It is important to differentiate between the term ‘price’ and ‘pricing’. Pricing refers to the process of determining the value of a product or service in quantitative terms (such as rupees and paise) at a given point in time.
According to Professor K.C. Kite, “Pricing is a managerial task that involves establishing pricing objectives, identifying the factors governing the price, ascertaining their relevance and significance, determining the product value in monetary terms, and formulation of price policies and strategies, implementing them, and controlling them for the best results”.
Pricing Decisions in Domestic and International Markets
Pricing decisions are complex even in a domestic market where a company operates solely. The challenge becomes even greater in international markets due to multiple currencies, trade barriers, additional cost considerations, and longer distribution channels.
The globalization of business has put increased pressure on the pricing systems of companies that enter international markets. These companies must adapt their pricing structures as they expand from being purely domestic players to exporters and then to overseas manufacturers.
The earlier pricing structures that were used by these companies may no longer be appropriate in the complex international environment characterized by high competition, more global players, rapid changes in technology, and high-speed communication between markets.
Considerations in International Pricing Decisions
Companies operating in international markets must identify:
- The best approach for setting prices worldwide.
- The variables that are important in determining prices in international markets.
- The level of importance that needs to be given to each variable.
- The variance in prices across markets.
- The variance in prices across customer types.
- The factors to be considered while determining transfer prices.
Effects of Pricing on Other Marketing Decisions
Pricing decisions cannot be made in isolation because pricing affects other marketing decision variables and determines:
- The customer’s perception of value.
- The level of motivation of intermediaries.
- Promotional spending and strategy.
For businesses that acquire business contracts through competitive bidding, such as the construction and mining industries and drilling companies, poor pricing decisions can threaten their survival. If the price is too high, the business may not be competitive, while if the price is too low, it may lead to unprofitability. In many cases, the price is also an indicator of product quality. For example, if a Mercedes car were priced in the same range as an Oldsmobile, it would lose some of its quality image.
In conclusion, pricing decisions are an important aspect of any business, and they have a direct impact on revenue, profitability, and growth. Companies operating in international markets face added complexity in determining prices, and they must adapt their pricing structures as they enter international markets.
Pricing decisions also impact other marketing decision variables, such as customer perception of value, level of motivation of intermediaries, and promotional spending and strategy. It is important for companies to establish pricing objectives, identify the factors that determine the price, determine the monetary value of the product, formulate price policies and strategies, and implement and control these policies for the best results.