Explain the effect of pricing policy on marketing mix.
Price is an important element in the marketing mix of firms and affects the other Components of marketing mix. Price helps to determine the sales volume and profit margins.
Price structure affects the competitive position. We can say that without pricing, there can be no marketing. Pricing policies have a direct impact on other elements of promotion mix., For example – if a firm decides to add new improved products to its existing line, arrange for wider distribution channels and undertake massive promotions, then this will all increase the price of the products.
There are many methods by which marketers price their products and services.
The two widespread methods are:
- Cost-based pricing, and
- Value-based pricing.
- Cost-Based Pricing:
It uses production or manufacturing costs as its base for pricing. Companies are following this approach by using their costs to fix a price ceiling and price floor. The floor is the minimum and the ceiling is the maximum price for a particular product or service. Ideally, the companies price their products anywhere in between the floor and the ceiling. This is popularly applied in companies that produce food products, textiles and building materials.
- Value-Based Pricing:
It uses the value of its product or service as the base for pricing. For this, the company finds out how much money or value will be generated by its product or service for the customer. This value could derive from factors such as happiness, increased efficiency or stability. This is popularly applied in companies that produce chemicals, medications, art work and computer software.
