CHAPTER 1

- UNDERSTAND PRICING -
DEFINITION OF PRICE

Price

The amount of money charged for a

product or service, or the sum of the
values that customers exchange for the
benefits of having or using the product
or service
HOW THE PRICE IS SET?

Price is set through bargaining between sellers

who ask for a higher price than they are
expected to receive and buyers who offer less
than they are expected to pay
ROLES OF PRICING
Roles of pricing to:
i. Economy
ii. Marketing Mix

ROLE OF PRICING IN ECONOMY:-

Prices go by many names:
 Rent - house, office, land
 Fee - tuition, society
 Fare - airlines, railways, taxies, buses
 Rate - local utilities
 Interest - bank charges for money borrowed
 Toll - using highways
 Premium - buying an insurance
 Salary - payment for executive
 Commission - payment for salespersons
 Wage - payment for workers
ROLE OF PRICING IN ECONOMY AND MARKETING MIX

a. Economy
- Through most of history, price has operated as a major determinant of buyer’s choice. That is still
the case of the poorer nations, among poorer groups and with commodity-type products.
- However non-price factors have become relatively more important in buyer-choice behaviour in
recent decades.
- Yet price still remains one of the most important elements determining company market share and
profitability.

b. Marketing Mix
- Price is the only element in the marketing mix that produces revenue, the other elements produce
costs.
- Price is also one of the most flexible elements of the marketing mix, in that it can be changed
quickly, unlike product features and channel commitments.
- At the same time, pricing and price competition are the number one problems faced by many
marketing executives.
THE IMPORTANCE OF PRICING

a. To recover the costs

- Pricing helps the company in recovering costs which the company has incurred for making the
product.
- For example: if the company has incurred RM5 for making a product and company decides to
charge RM4 only then it will not be proper pricing, as at RM4 company is not even recovering the
cost it has incurred to manufacture the product, and when the company is not even able to recover
its cost that it will go bankrupt soon.

b. To earn profits
- Pricing helps company in earning profits which can further be used to expand the capacity of the
company.
- For example: if company charges RM7 for its product then it will earn RM2 per sale which is the
profits and when the volume of sales rise, it can lead to bumper profits for the company which then
can be used to further augment the production capacity and also increasing the workforce in the
company which in turn will help the company in becoming big.
THE IMPORTANCE OF PRICING

c. To combat the competitors

- Pricing also helps the company in combating competitors because business has stiff competition
and when products are same and competition is tough then pricing plays the key part in attracting
customers from the competitors.
- For example: in the case of homogenous products, company has no option but to compete on the
basis of pricing of the product, lower price means more sales in comparison to its competitors.

d. To create a brand
- Pricing also helps the company in creating a brand in the minds of brand conscious customers.
- For example: brands like BMW in car segment, iPhone in mobile segment, Reebok in shoe
segment and so on are all brands which are known for their higher price and consumers buys
these products not only for their features but also due to higher-priced products that lower-priced
products..
THE IMPORTANCE OF PRICING

e. To decide the marketing strategy for the

company
- Pricing helps the company in deciding the marketing strategy of the company because if the price
of the product of the company is high, then it will market its product on the basis of unique
features, and if the price of the product of the company is low than company will market its
product on the basis of low price as consumers first see the price and the see the features.
THANK YOU