Pricing - What A Price Should Do

What A Price Should Do

A well chosen price should do three things:

• achieve the financial goals of the company (e.g., profitability)
• fit the realities of the marketplace (Will customers buy at that price?)
• support a product's positioning and be consistent with the other variables in the marketing mix
  • price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product
    • price will usually need to be relatively high if manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns
    • a low price can be a viable substitute for product quality, effective promotions, or an energetic selling effort by distributors

From the marketer's point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer surplus to the producer. A good pricing strategy would be the one which could balance between the price floor (the price below which the organization ends up in losses) and the price ceiling (the price beyond which the organization experiences a no demand situation).