Pricing is becoming a way of life for many retailers and manufacturers as competition increases.
Warehouses and products that are not normally associated with low prices are entering the field to gain market share.
the-calculation-of-the-price-within-productionThe purpose of marketing is to facilitate exchange relations between buyer and seller, it is here where the price becomes important because it is the value that is exchanged for products. And in most situations the price is very obvious, and this allows buyers and sellers to be aware of the amount of value that each must sacrifice in order to complement the exchange.
To carry out this work we have taken into account what was expressed by Trout (1999), simplicity is a powerful weapon even when addressing such a deep and complex issue, from the mathematical point of view, such as price. That is why statistical or mathematical formulas will not be addressed, but the concepts will be worked on from a practical point of view and through examples. Seeing it from Trout's point of view when quoting Publius Sirius: "A thing is worth what the buyer will pay for it."
This research focuses on the nature of price and its importance from a consumer and manufacturer point of view. Price types are then considered, and then the pricing stages are explored where the interrelation between the demand for a good and the price level is explained in detail in order to visualize the possible effects that a change in the prices may have on the income and costs of an organization.
Finally, reference is made to the most representative discount policies and a practical case in which the price calculation is clearly and easily manifested.
Analysis.
Price Concept.
Amount of money that must be paid for the purchase or rental of a certain product or service. We could also define price as the monetary value, based on which, whoever offers a good or service for sale would be willing to participate in an exchange process.
Importance of price.
Its importance derives from its link with supplies and demand, if the price falls, the demand rises and consequently supplies increase, but this by increasing competition, lowers profit margins and then several manufacturers leave the market, This reduces supplies and forces prices to rise, which in turn increase profits and production becomes interesting again.
The price from the point of view of the consumer and the manufacturer
What the consumer expects from a product are the benefits that can be derived from it, in terms of satisfaction of needs; then for the person, the price becomes that part of his income that he must dedicate to obtain the expected benefits, it is then said that the consumer perceives the utility of a brand or product when the benefits of this exceed its costs.
This last aspect has great significance in the pricing policies, by the manufacturer, since it does not matter what price it assigns, but in the eyes of the consumer the product is worth this figure. This is to say that when setting prices, the consumer and their cost-benefit perceptions must be kept in mind.
From the point of view of unit sale, the price is the form through which the manufacturer covers the costs of the merchandise sold, it has a remainder to absorb other expenses and contribute to the activities of other businesses. In terms of global sales, we would say that the price has a great impact on the total sales of the company, since according to the level that is set, the units sold and therefore the total sales will vary.
Price types
Base price. It is the price of an individual product at its point of production and resale. It is also called a cost price in which the producer has not included his profits or expenses, only his costs.
List price. It is the official price of a product, which generally appears in what is known as a price list or also before discounts or other types of deductions. In other words, it is the so-called PVP.
Expected price. Price that a certain product is worth according to the conscious or unconscious valuation of the buyer or consumer. This is what we call the cost-value ratio.
High prices. Marketing strategy that consists of adding a new one with a higher price and a lot of prestige to an existing line of products in order to cause an increase in the sales rate of previous products. This is a strategy that allows increasing the line extension, increasing the production capacity of the plant to reach other segments that can be very profitable. This strategy is sometimes used to stimulate the market.
Low prices. It is the opposite of the previous strategy. It consists of adding to an existing line of products of recognized prestige a new one with a lower price in order to reach lower socioeconomic levels. This strategy starts from the premise that the market will associate the prestige of the higher priced products with the lower value. In other words, higher priced products are expected to help sell lower priced ones. It is also aspirational in nature, as it is aimed at those consumers who, although they would like to buy the most expensive product, are satisfied with the cheaper “similar” product.
Symbolic prices. Price that instead of being governed by the law of demand and supply, is set in order to convey a specific idea about the product. It is sometimes used for promotions, the famous "plus 1 Bs."
Stabilization prices. Practice that it does in order to stabilize the prices of an industry and that is usually an initiative of the company that is the leader in prices. It is used for the other companies in the industry to establish their prices in relation to the pattern set by the leader. Sometimes the pattern is set to avoid a price war that would affect not only competitors but also the market. As in the case of soft drinks, all cans are worth 350 Bs. On other occasions such as PVP, it is a government protection policy in which it is the one who sets what the price will be.
Penetration prices. Pricing strategy that consists of setting a low initial price in order to facilitate the rapid penetration of the product in the market.
Unit prices. Method of establishing a price in relation to some universally recognized measure, generally kilo or liter, so that it helps the customer at the time of purchase. It is given as a reference, for example, if the consumer knows how much a kilo of smoked ham is worth, he can more easily decide how much to buy.
Stages for pricing
Setting prices is a problem when a company must determine prices for the first time. This happens when the company develops or acquires a new product, when it introduces its regular product in a new distribution channel or geographic area, and when it enters a tender for a new employment contract. Companies must decide where to place their product in quality and price. It is for this reason that pricing becomes so important. Below are several important steps to carry out this process:
- Stage 1. Selection of price objectives. Stage 2. Market identification. Stage 3. Demand determination. Stage 4. Costs estimation and compression. Stage 5. Price policies selection. Stage 6. Selection of a method to set prices. Stage 7. Selection of the final price.
Stage 1. Selection of price targets.
The company must first decide what it wants to do with a particular product. If you've selected your target market and your position in it, then your marketing mix strategy, including pricing, will be fairly straightforward. For example, if an RV company wants to produce a luxury vehicle for wealthy customers, this implies charging a high price. Of course, it will surely place certain luxury attributes, better materials, etc. so that the product has a better perception by the customer. Therefore, the pricing strategy is largely determined by market placement.An example of this type of detail is the Toyota Camry model, which comes from the factory with cloth seats and dealers are forced to put leather seats because it is difficult for a customer to perceive a vehicle of more than 20,000,000 Bs. no leather seats.
On the other hand, the company could pursue additional objectives. The clearer the objectives of a company are, the easier it is to set the price. Each possible price will have a different effect on goals such as profit, sales profit, and market share. A company can pursue any of the six fundamental objectives through pricing.
- - Companies seek survival as the main objective if they are saturated by excessive capacity, intense competition or by changes in customer requirements. Companies stay in business as long as prices cover variable costs and some fixed costs. However, survival is only a short-term goal. In the long term, the company must learn how to add value or face extinction. This may be a current strategy used by small and medium-sized businesses to survive, especially those service companies. Current Maximum Profit.- Many companies try to set the price so that they maximize their current profits. They estimate the demand and costs associated with alternative prices and select the price that generates the maximum current profit,cash flow or rate of return on investment. Maximizing current utility presents problems. It assumes that the firm knows its demand and cost functions; it is actually difficult to estimate them. In addition, the company places an emphasis on long-term performance. Finally, the company ignores the effect of other variables in the market mix, the reactions of competitors and legal restrictions on price. To avoid a price war.- The idea is not to use price as a competitive tool, that causes a price war with its fatal consequences. Instead, they think about setting prices similar to the competition and rather using advertising, customer or dealer service, or product improvements as a means to compete and increase sales.Maximum sales growth.- Other companies want to maximize unit sales. They believe that higher sales volume will result in lower unit costs and higher long-term profit. They set the lowest price by assuming that the market is price sensitive. This is called pricing for market penetration. One of the go-to-market pricing firms is one that will: build a large plant, set its price as low as possible, gain large market share, experience cost reduction, and reduce its price as much as costs decrease. Maximum skimming of the market.- Many companies favor the establishment of high prices to “skim” the market.With each innovation you estimate the highest price you can charge given the comparative profits of your new product against available substitutes. An example is Kodak who practices market skimming. It first launches an expensive version of a new camera and gradually introduces simpler models at lower prices to attract new price-sensitive segments. Market Skimming makes sense under the following conditions: A sufficient number of buyers have a high current demand; low volume unit production costs are not so high that they negate the advantage of carrying traffic implications; the high starting price does not attract more competitors; and the higher price communicates the image of a superior product. Leadership in product quality.- A company could be the product quality leader in the market. Mabe, a company that manufactures high quality washing machines and gives them a price of barely 50,000 Bs. More than the washing machines of its competitors, uses the motto "made to last longer." Mabe's strategy of superior quality and superior price has provided it with a consistently higher rate of return than the industry average.Other Pricing Goals.-Nonprofits and public organizations can adopt many other pricing goals. prices. A nonprofit theater company may price its productions to sell the maximum number of seats in the theater in order to publicize the play. A social service agency may set a higher price for a movie premiere because it is for charity.
Stage 2. Market Identification.
Before setting the price of an item, the target or target market (group of potential consumers that you want to reach) must be defined. Likewise, knowing their purchasing power, their degree of sensitivity to price, the importance that these people give to the product compared to others, the amount of money they are willing to invest in a product with the characteristics of ours, that is, detect the value that the consumer perceives about the product. All this will help to establish a price more in line with the reality of the market. The reaction to prices will be very different in a group of consumers oriented to prefer, above all else, high quality, careful attention and excellent presentation.
Some companies for this stage carry out market research, market tests, scale product tests before going out to sell nationally. It is important to segment and clearly define who the product is going to be directed to as it is impossible to appeal to all the target.
Segmentation consists of: The division of a heterogeneous group of consumers into a smaller homogeneous subgroup in the main characteristics of its members.
There are different techniques to segment, however, the variables most applied according to the expert Kotler (1996), are Demographic (according to age, sex, etc.), Geographic (according to where they live), Psychographic (according to their customs, culture, etc..) and according to your purchasing or consumption habits.
The objective of segmentation is to channel efforts and resources towards the areas with the greatest and best possibilities, in order, as has been said, to make efforts and therefore income more effective.
Stage 3. Determination of the demand.
Each price that the company may charge will lead to a different level of demand and, as a consequence, will have a different effect on its marketing objectives. The relationship between the current price being charged and the resulting current demand is captured in the common demand schedule. This denotes the number of units that the market will buy in a given period at alternative prices that could be charged during that period. In the normal case, demand and price are inversely related, that is, the higher the price, the lower the demand (and vice versa).
Factors that affect price sensitivity.- The demand curve shows the index of market purchases at alternative prices. Add up the reactions of many individuals who have different sensitivities to price. Among which we can observe several factors:
- Single value effect: Buyers are less price sensitive when the product is more original, i.e. there are few substitutes. Substitute awareness effect: Buyers are less price sensitive when they are less price conscious. Effect of substitutes. Difficult comparison: Buyers are less price sensitive when they cannot easily compare the quality of substitutes Total spending effect: Buyers are less price sensitive the lower their income spending. A consumer will be less sensitive to buying a candy or deciding where to have lunch than to buying a vehicle or deciding where to spend their holidays, and this is where the concept of mass consumer products appears.Buyers are less price sensitive the lower they spend on the total cost of the finished product. As complementary products to other more expensive ones. For example, what does it matter to me to spend 1,000,000 Bs. On some special wheels for my Grand Cherokee if it is worth 25,000,000 Bs? Cost-sharing effect: Buyers are less price sensitive when another party absorbs a percentage of the cost. Combo-type promotions Sunk investment effect: Buyers are less price sensitive when the product is used with previously purchased assets Price-quality effect: Buyers are less price sensitive when the product is supposed to be of higher quality, prestige or exclusivity. Effect of inventory: Buyers are less price sensitive when they cannot store the product.
Methods for estimating demand schedules.- Most companies make attempts to measure their demand schedules. In the lawsuit program investigation assumptions are made about competitive behavior. There are two ways to estimate demand, one is to assume that the prices of competitors remain constant regardless of the price that the company stipulates. And the other is to assume that competitors will set a different price for each price that the company could set.
To measure a demand program it is necessary to vary the price. A study can be conducted in a laboratory setting by asking subjects to indicate how many units they would buy at various possible prices. By measuring the price / demand ratio, other factors that could affect demand can be controlled or tolerated.
Price elasticity of demand.- Marketers need to know how much demand would respond if there were a change in price. Price elasticity is determined by several conditions: 1) There are few or no competitors or substitutes; 2) Buyers do not easily perceive the higher price; 3) Buyers are slow to change their buying habits and to seek lower prices; 4) Buyers think that higher prices are justified by increases in quality, inflation, and other relevant factors.
Stage 4. Estimation and Compression of Costs.
Demand largely represents a ceiling for the price the company can charge for its product and the company's costs represent the minimum ceiling. The costs of a company are presented in two forms, fixed and variable. Fixed costs do not vary with production or profits from sales. Thus a company must pay bills each month for rent, heating, interest, executive salaries, and so on, whatever the company's output. Fixed costs prevail regardless of the level of production.
Total costs consist of the sum of fixed and variable costs for any level of production. Management wants to charge a price that covers at least the total production costs at a given production level.
Two fundamental ideas emerge from cost compression:
1.- The manufacturer or merchant who wishes to remain in his business, must set a price such that his articles at least cover the total costs incurred in meeting the demand.
2.- To generate profit in a business, it is necessary that the total income achieved in a fiscal period, exceed the total costs incurred in generating that income. In other words, to go beyond the equilibrium point.
The breakeven point is the situation where the firm's total costs are equal to its total revenues. The equilibrium point serves to:
- Have an idea of how much to sell as a minimum to avoid losses (assuming a given price level) Understand the structure of costs and income and the effect on these has the price-quantity relationship Compare various price levels of such In such a way that as many equilibrium points as prices are tested can be generated, in order to later see in the light of reality which of them is the most appropriate. Simulate the competitive effect of various prices, costs, quantities based on the equilibrium point.
Stage 5. Selection of price policies
Price policies are those general principles, rules or action guides that companies propose or endeavor to follow in their daily decisions regarding prices. Some of them are studied below.
1.- Policy on price flexibility. One of the first things that an entrepreneur has to define in the matter is whether he adopts a single price or flexible price policy. The single price policy consists of offering the same price to all customers who buy goods and services essentially under the same conditions and in equal quantities. The flexible pricing policy is to offer the same products and quantities at different prices, depending on each customer's ability to bargain, friendship ties, or other factors. Although this last policy is used in many types of transactions; not for that reason it stops having its negative aspects; Some of them are: frustrated customers, knowing that they are charged more than others; the vice of easy selling by the seller,at the cost of lower profits for the owner, and higher cost in terms of time spent bargaining.
2.- Policy on price level. The question is, should the price of our product be set below, at the same level or above the competition? To give an accurate answer we must look at the type of market where the firm in question operates. If the environment is that of a strongly competitive market (many sellers in the same type of business), with highly homogeneous products (very similar to each other) and where buyers and sellers are well informed regarding the price at the same level of competition, since if the entrepreneur sets a higher price, he will not attract customers, and setting a price below the competition is of little use when the firm is sure that it can sell all its merchandise at current rates, or worse, the unleash a price war affecting small entrepreneurs.
In markets characterized by high product differentiation (hence the emphasis on innovation), the entrepreneur feels more free to set their prices above or below the competition. Some firms at the retail level tend to use prices below the competition as a policy; its business philosophy is that of low margins and large volumes; others, that of few additional services, for sale and low prices. In the field of manufacturing, we have the example in some brands of clothing, automobiles, furniture etc. The policy below competition is a way of penetrating new markets characterized by high sensitivity to prices, that is, with elastic demand.
There are traders and manufacturers who set the price of their products above the competition, because these products enjoy a high prestige and welcome within the consumer public, due to their distinctive characteristics that make them unique and irreplaceable, to such a degree of development. some brand loyalty.
3.- Pricing policy for new products. There are three policies in setting prices for new products, they are: the skimming policy, the penetration policy and the introduction pricing policy.
The skimming policy consists of setting a fairly high price for the new product, in the introductory stage of its life cycle, in such a way that it is capitalized on those consumers willing to pay a higher price in order to have the privilege of being the first in owning or testing the product. This strategy is generally used with highly differentiated, unique, novel products where the conditions for profit maximization exist.
4.- The penetration policy. It consists of setting a low starting price in order to quickly reach and capture the mass market. The following are the conditions under which a penetration policy can be adopted:
- When it is desired and there are the conditions to keep the competition out of the market. A low initial price may discourage other firms from entering the market because they are faced with a business with low profit margins and large investments.When there is no exclusive market, willing to pay a high price for the privilege of be the first to adopt the product; that is, when demand is fairly price-sensitive (elastic) When the firm wishes to promote broad product adoption When substantial reductions in unit costs can be achieved as a result of mass production and marketing When the product from its introductory stage it faces strong competition.
5.- The introductory pricing policy. It consists of offering a reduction in the price of the new product, for a limited time, in order to accelerate its entry into the market; once this introductory period is over, the price of the item in question is raised.
6.- The pricing policy taking into account transportation costs. The vast majority of products, once acquired, need to be transported to their destination, causing transport costs that, depending on the characteristics of the merchandise, its quantity and destination, can be either very low or in other cases represent a considerable cost. significant within the total value of the merchandise. A good number of firms incur this type of expense and regardless of whether they are high or not, the employer must define in advance whether it will be the buyer who pays all of them or he, in his capacity as seller, or part absorb it. and the buyer leaves. Whatever decision is made in this regard, it has a direct effect on the price structure and the final price of the merchandise.
Stage 6. Selection of a method to fix prices.
Once the pricing policies have been defined, the next step will be to select the method or procedure to set prices permanently, there are many methods or formulas used to set prices, the most common methods will be discussed below.
- Cost-Based Pricing: This practice is very common in the business market, possibly because of its simplicity. It consists of calculating the total costs of the product, adding a profit margin to them and obtaining the price. Its great limitation is that most of the time the position or reaction of the demand is not taken into account. Here are the most common procedures for this approach: Cost plus a margin method. It is used both at the retail business level and in the manufacturing field. Flexible margin method. It is a variant of cost plus or margin, in which instead of adding a fixed profit margin to the costs of the merchandise, rather a flexible margin is chosen according to the circumstances. The amount or value of this margin will fluctuate according to economic conditions,the degree of competition and general market conditions. The method requires the manager to observe and analyze the demand. Pricing based on the break-even analysis.
- This method was seen as the area beyond the equilibrium point represented the profits at different levels of units sold and it was concluded that this method could be used for something more than simulating various situations of prices, quantities sold and costs, if who uses it. takes into account the behavior of demand for each price level beforehand.
- The basic principle of this method is that the demand (group of consumers) is taken into account. Thus when demand is intense (many consumers eager to purchase a given product) high prices are set, and when demand is weak, low prices are set, even if the costs are the same in both situations.
The method is based on the fact that to set the price of its articles, the manufacturer or the merchant, first of all, starts to consider the price of its competitors.
The method is especially useful when the product or products are very similar to those of the competition and where price is the strategic marketing key. Its application becomes visible at the retail level, where some merchants have the practice of selling their products a few pesos below the prices of the competition; in other situations, the entrepreneur's procedure is to set his prices equal to those of the competition.
When it comes to the same kind of product, but where the article under study has certain characteristics different from the others, it is also suggested that the prices of competing products be taken into account and based on these, a price is established that considers those differences and keep their proportionality.
If you want to set a price for your product based on this method, the steps to follow are:
- Find out the price of each competing brand Make a careful analysis of the characteristics of each camper in terms of power, load capacity, design, quality of its manufacture, fuel consumption, warranty, origin, time it has been in the market, image, etc. Study the way in which the price of each brand reflects its difference compared to other brands Place the brand within the price range, taking into account its distinctive characteristics compared to other brands Make sure that this tentative price reflects the proportionality of differences between brands Complement this price with other pricing methods, where other business objectives are taken into account.
Stage 7. Selection of the final price.
Once the policies and pricing methods have been chosen, the entrepreneur is in a position to choose a definitive price for the article under study. Likewise, it can be added that price as one of the elements of the marketing mix (the other elements are: the product, promotion and distribution) is characterized by greater flexibility compared to the others, in the sense that it is It can be changed quickly, raising or lowering it according to the demands of the market and the competition. What is suggested is that this flexibility is not abused, since the consumer can create a bad image of the product and the business.
Sellers should consider price psychology in addition to its economics. Many consumers use price as an indicator of quality. Image-based pricing is especially effective with ego-sensitive products like perfume and expensive cars. In a study of the relationship between perceptions regarding price and quality of automobiles, I found that the relationship operates reciprocally. High priced cars were perceived to be of high quality, though not guaranteed. It was also found that high-quality cars were priced higher than the actual price. When you have access to true quality, price becomes a less important quality indicator. When this information is not available, the price functions as an indicator of quality.
Sellers often manipulate reference prices when pricing their product. Buyers have a reference price in mind when looking for a particular product. The reference price may have been formed by knowing current prices, prices paid, or the context of the purchase. For example, a salesperson may place his product among very expensive products to express that he belongs to the same class. Reference price thinking is also created by setting a high manufacturer's suggested price or by stating that the product is priced much higher originally or by pricing a competitor.
Discount policies
In the business sphere, it is customary for the seller to offer his customers discount rates on the list price. Next we will see the most representative discount rates:
- Functional discount. The purpose of this discount is to compensate intermediaries for the marketing functions that they perform within the distribution channels. Sometimes it is presented as a commission. Quantity discount. Sellers offer quantity discounts to encourage their customers to buy in bulk. The justification for this discount is based on the fact that buying in bulk reduces the costs of sales and dispatch and shifts the functions of storage, financing and assumption of risk to the buyer. Quantity discounts can be of two kinds: They are discounts that are applied to merchandise purchased over a period of time, say a year, and that increase as the quantity purchased increases.This type of discount makes the buyer resort and concentrate his purchases in a single supplier. Sometimes the prize figure is used in which the customer receives something by accumulating a certain amount of purchases, not cumulative. They are quantity discounts, which are applied individually to each order. This type of discount encourages the person to buy large quantities, but does not commit them to continue buying from the same supplier. Quantity discounts can be applied based on the number of units purchased or based on the total monetary value of the order. An example of this are those stores that sell at a higher price after the customer buys six pieces. Cash discount. This discount is used as an incentive for the customer to pay their account before the due date.Its justification is that accounts receivable represent for many companies expenses and collection problems and at the same time a deprivation to quickly reinvest said monies in business opportunities. Cash discount. A cash discount is a price reduction for buyers who pay their bills on time. Such discounts are common in many industries and serve to increase sellers' liquidity and lower the costs of collecting difficult loans and debts. An example is the one that some institutions offer a 10% discount if the person pays in cash, which is nothing other than the cost corresponding to the payment with a credit card: commission payment to the bank and payment of tax for use of the card Seasonal discounts.A seasonal discount is a price reduction for buyers who purchase merchandise or services out of season. Seasonal discounts allow the seller to maintain more stable production throughout the year. It also allows you to renew your inventory. For example, when hotels, motels and airlines will offer seasonal discounts in their low sale periods.
Practical case: Determination of the rate in American International personal accident insurance.
In the case of personal accident insurance, the first thing to determine is the possibility that this accident will occur.
In Venezuela, according to statistics published by the Central Office of Statistics and Informatics (OCEI) every hour a Venezuelan dies from an accident, resulting in 8,760 accidental deaths per year. If we divide this by the population at the time that statistic was taken, we obtain:
8,760 / 22,000,000 = 0.40 per thousand.
This is the pure rate, which covers the risk of accidental death and which in the case of Personal Accident insurance is practically the raw material. We determine that within the cost structure the company can distribute them as follows:
| Sinister | 35% |
| Administrative expenses | 25% |
| commissions | 25% |
| Utility | fifteen% |
| Total | 100% |
Where risk is the insurance raw material, administrative expenses are what corresponds to the manufacture of the product and the commission is the distribution costs. By a mathematical formula we determine that if 35% of the premium corresponds to the risk with a rate of 0.40, then:
| Sinister | 35% | 0.40 |
| Administrative expenses | 25% | 0.30 |
| commissions | 25% | 0.30 |
| Utility | fifteen% | 0.20 |
| Total | 100% | 1.2 per thousand |
So the correct rate to charge is 1.2 per 1,000. In a practical way, a person who wishes to take out insurance for accidental death of Bs. 20,000,000 with our company must pay a premium of Bs. 24,000. That amount is then divided as follows:
| Sinister | 35% | 8,400 |
| Administrative expenses | 25% | 6,000 |
| commissions | 25% | 6,000 |
| Utility | fifteen% | 3,600 |
| Total | 100% | 24,000 |
This value is increased in the event that the person wishes to have other coverage, such as in the case of medical expenses, weekly compensation, etc.
On the other hand, surcharges will be taken into account in special cases such as: Risk concentration, particular type of risk according to the profession, in the event that any of the variables previously exposed increases, etc. but it will also be possible to give discounts based on volume. In other words, if a group of people wishes to take out the policy, there is a decrease in operating expenses that translate into a discount. For example, from 11 to 30 people a 10% discount is given, from 31 to 50 a 20%, and so on.
Conclusion.
Companies are invariably eager to satisfy their shareholders with dividends, for which it is necessary that they have normal profits, which is the only way they can convince shareholders to keep their capital in the same place. That is why determining the correct price is vital within the management of a company's production.
In his latest book, "The Power of Simplicity" Trout (1999) dedicates a chapter on the issue of price. Some tips have been extracted from it as a recommendation:
- As for the price: you have to stay in the game. Too high or too low, what really counts is staying in the market - people will pay a little more for perceived value. If we take into account one of the laws of marketing, it is possible to charge a little more for a product that appears to be more. High-quality products must be more expensive. This is intrinsic to perception. High-priced products should give prestige. If not, why pay more? Late competitors often enter on a price basis. If someone is late for a meeting, the last thing they want is to be noticed. High prices and profits attract competitors. That is why it is not always good to keep prices high - not accustom customers to buying by price. Changes in prices stimulate the market and you cannot always be on a discount.It's hard to win at a low price. Definitely, companies must be more efficient and improve their service instead of lowering their prices if they want to be profitable. A budget for promotion must be included in the price. If the market is not told that there is a promotion, how is it expected to take effect?
Finally, it is important to take into account the subjective or psychological perception of the price. It is not simply what mathematics says the product should or can cost but how the customer perceives the product and what they consider its price to be, but this particular point would be enough topic for another work.
"A product is worth what the buyer will pay for it and what the competition will allow them to charge." (ib. P 87).
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