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Pricing

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Pricing

Traditionally, price has operated as the main determinant of buyer's choice. Even though

the recent past has witnessed a shift in buyer behavior with non-price factors influencing the

customer's decision process when buying products and services, price remains a major factor in

influencing buyer's decision process. Therefore, pricing is a crucial decision-making aspect since

it determines the future of the product or service, the acceptability of the product and service to

the customer, and the return and profitability of the product. This makes pricing a vital tool of

competition. Organizations that successfully manages prices do so by establishing a pricing

infrastructure that allows the definition of pricing goals, finding ways to create increased

customer value, assigning responsibility for pricing decisions, and developing tools in a system

that continually improve pricing decision (Lamb et al., 2021). Pricing is not only important to the

organization, but it is also significant to the economic development. Therefore, exploring the

importance of pricing will provide an in-depth understanding of the role of pricing in an

organization and the economy.

Importance of Pricing in an Organization

One of the main importance of pricing in a firm involves determining the firm’s returns.

The basic motive of every for-profit firm is to earn a profit. Firms aim to optimize profit using

multiple means. After a product is manufactured, the manufacturer determines the price of the

product, which includes returns or the profits it intends to earn (Lamb et al., 2021). The

percentage that the manufacturer sets per product or service determines the overall firm's return.

Appropriate pricing strategies balance revenue generation with cost efficiency by considering

production costs, market demand, and competitors' pricing. Pricing choices affect a company's

cash flow, profitability, and investment prospects. Businesses can maintain healthy profit
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margins, adjust to shifting market conditions, and continue operating in the long run by regularly

reviewing their pricing strategies. Pricing is employed to draw clients and boost revenue. To

entice customers to purchase products, for instance, discounts, coupons, and other promotional

offers are used.

Pricing is important to a firm since it is a vital competitive tool. Firms normally utilize

pricing as the key marketing tool to survive and succeed in the competitive market (Mattos et al.,

2021). Proper prices assist a firm in sales increase and market share, which consequently

generates enough revenue. In this context, pricing significantly influences an organization's

competitive position. Pricing is also important since it is the determinant of the market demand.

Pricing represents evaluating the values consumers perceive in a product or service and their

willingness to pay. Normally, increased prices cause reduced demand, and low pricing leads to

increased demand. Moreover, pricing is imperative to a firm since it builds product image and

triggers an initial impression on a consumer. Price is frequently the first feature of a product that

a buyer notices. The customer will probably weigh the product's perceived value against its price

before making a final purchase, even though he may base his choice on the product's overall

benefits. In the context of building product image, customers mostly believe that high-priced

products are of high value and benefit, while low-priced products are inferior.

Importance of Pricing in the Economy

The main importance of pricing in the economy involves allocating products and

services. The basic purpose of pricing is to allocate products and services to the various society

members. By doing so, pricing develops a free market economy, where the most valued products

and services are distributed to individuals who demand them. When the resources are limited,

those with better purchasing power are better positioned to afford them. In this context, pricing is
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also the allocation of resources (Sujan, 2021). Prices direct resources toward their most valuable

uses by communicating information about the relative scarcity of goods and services. Prices

ensure that resources are allocated in a way that balances supply and demand, allowing for the

production of goods and services in quantities that correspond with consumer demands and

preferences.

Pricing is also important to the economy through the regulation of production factors.

Pricing impacts the price paid for production factors (Sujan, 2021). The price of products and

services determines the prices paid for wages, profits, interests, and rent. Labor is drawn to high

wages, capital is drawn to high-interest rates, and so forth. Therefore, new fiscal and monetary

policies need to be regulated by the government. Pricing is the main economic regulator in this

sense.

Moreover, pricing has indirect effects on the savings of a nation. When the pricing of products

and services is high, consumers face difficulties in coping with it. Therefore, high pricing is

inversely proportional to the consumer's savings, hence the nation's savings. The administration,

therefore, utilizes pricing as a key indicator to evaluate its economic status and take the

necessary interventions.

Pricing is important to the economy since it is a source of income. Governments of every

nation across the globe utilize pricing systems to generate income for their developmental and

operational work (Lamb et al., 2021). The cost of public utilities, security, law, social order, etc.,

is set by the government. An efficient pricing system allows the government to generate revenue

smoothly, which benefits the economy overall. Pricing is important to the economy because it is

a major government activity. Pricing choices have wider effects on inflation and economic

stability at the macroeconomic level. The general levels of prices in the economy have an impact
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on inflation rates, which central banks closely watch. Pricing decisions that are steady and

predictable help to keep inflation in check and support economic stability. Pricing choices also

have an impact on government fiscal policies, interest rates, and wage negotiations, which shape

the economy as a whole.

In conclusion, the price has operated as the main determinant of the buyer's choice.

Regardless of the shift in buyer behavior with non-price factors influencing the customer's

decision process when buying products and services, price still remains a major factor in

influencing the buyer's decision process. Therefore, pricing is a crucial decision-making aspect

since it determines the future of the product or service, the acceptability of the product and

service to the customer, and the return and profitability of the product. Pricing is important in the

economy since it determines the allocation of products and services, regulates factors of

production, influences savings, and is a source of income. For a firm, pricing is important since it

is a determinant of market demand, determines the firm's revenues, and is a competitive tool.
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References

Lamb, C. W., Hair, J. F., & Mcdaniel, C. (2021). MKTG: principles of marketing. Cengage

Learning Asia Pte Ltd.

Mattos, A. L., Oyadomari, J. C. T., & Zatta, F. N. (2021). Pricing Research: State of the Art and

Future Opportunities. SAGE Open, 11(3), 215824402110321.

https://doi.org/10.1177/21582440211032168

Sujan. (2021, September 28). 10. Importance of Pricing to The Firm, Customer, And Economy.

https://tyonote.com/importance_of_pricing/#To_The_Economy