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What is Price?

price, marketing, management of price, selling, management, business, organization, marketing management

Price means something quite different to those on one side of the deal and those on the other. Price tells the manufacturer or retailer, if his accounting methods are good enough, how much profit he will make; and it tells the purchaser what the cost will be to him, though cost is not necessarily reckoned purely in terms of immediate cash payment.
A large proportion of individuals, when they buy a car, do so through a hire-purchase agreement. The important factor then becomes the size of the weekly or monthly payment. An industrial purchaser may actually be expecting to save costs by installing a particular piece of equipment. In both cases they may well be comparing the value or benefit they will get from this purchase with that from spending the same money in some other way.

In Kotler's 'four Cs' cost is the equivalent from the customer's point of view to price from the seller's.

Both personal and industrial buyers see price to some extent as a signal of quality. An example of a product that failed to sell because they were priced too low is oil. Oil with an unusual specification could not be sold at a low price, but when re-offered as a special formulation at a high price, it sold very well. It is easy to test that this is a commonplace kind of reaction. Ask any group of, say, a dozen people what they would expect to pay for a normal household appliance such as a refrigerator of a certain size and appearance.

While they may be fairly vague about the price, after a little discussion most will agree on it falling within a certain band. Only a small number would be willing to pay more, and they would expect to obtain better quality in return. Usually no-one will be willing to pay a price below the agreed range because of the danger of receiving a product of unacceptable quality. Thus prices are a signal to the buyer of both cost and quality.

The Plateau Effect

For many products there is a top limit above which few people are prepared to pay for a given level of quality. Thus, for many years, certain items, especially in the clothing industry, would carry relatively low prices .A look in some clothing boutiques for example will still show skirts or jeans at prices such as $89.95 (or even $99.99), and many other examples can readily be found.

It is well established that when buying gifts people have a sum of money in mind. They go shopping for something costing 'about a couple of dollars'. Sometimes it is important that a present is known by the receiver of the gift to have cost a lot of money. Some perfumes, jewellery, and certain brands of chocolates illustrate the point. Offering these products at a lower price might well make them less, not more, attractive to the buyers.

Companies selling items intended to be given as gifts produce them at prices that fit into one of the categories in which customers themselves rank gifts. Thus one company produced a range of birthday cards incorporating a game or a 'cut-out' to meet the need of mothers whose children have been invited to a school friend's party; an ordinary birthday card costing, say, 50 cents would be 'too little', and a gift costing, say $20 'too much', but a card also serving as a small gift and costing perhaps $10 is 'just right'.

Thus the price of a product is not seen by the purchaser simply in terms of 'what is the cheapest'. Price is rather one element in the total 'bundle of satisfactions' which is what really constitutes a product in the customer's eyes.

Published: 2007-04-30
Author: Martin Hahn

About the author or the publisher
Martin Hahn PhD has received his education and degrees in Europe in organizational/industrial sociology. He grew up in South-East Asia and moved to Europe to get his tertiary education and gain experience in the fields of scientific research, radio journalism, and management consulting.

After living in Europe for 12 years, he moved to South-East again and has worked for the last 12 years as a management consultant, university lecturer, corporate trainer, and international school administrator

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