Price can be described, in the modern sense, as the money you would need to pay to procure a product or service from a vendor. Before monetary systems, when bartering was the method of payment, the price was – for example – the number of chickens you traded for your groceries each month. Price is directly linked to value, and a marketer’s job is to ensure potential customers know the value of the company’s products or services. Below we take a look at the manner in which marketing professionals perceive price, what customers do when finding out a price of a product, how price affects a company’s profit, and the role of price in communicating value.
How marketers see it
Marketers are tasked with attracting customers to a brand, and thus see price as a monetary value that potential clients will spend to obtain a product or service. If customers see value in that the product is the right solution for their needs at the price it has been marked at, they are more likely to become customers and followers of the brand.
The psychology of price
Status is a driving factor behind countless purchases every day. Hotshot attorneys want to drive around in Mercedes Benz sedans that make them seem important. Customers equate expensive cars to high status, and the pursuit of the situation is a contributing consideration when entering into a transaction. Price is also linked to the perception of quality. Customers equate price to quality, so a low priced item might be perceived as unable to last long, while more expensive variants are believed to have extended life spans. In other words, the valuable product is always seen to be better.
Price and profit
Price has much value to business owners, who, unfortunately, are required to establish rates that will lead to profit generation and organisational growth. Price decisions are ideally made alongside expected sales volumes to create a favourable sales turnover/unit margin position. If prices are too high, customers might not perceive value in the transaction and might opt for a cheaper competitor. If prices are too low, sales might boom, but margins will be small and little profit will be made.
What about value?
In today’s marketing world, the value of a transaction isn’t always found in the quality of the product, or how affordable it is. Value can also be conveyed by including ‘value-added’ benefits to the sale (like getting a free iPad with your smartphone contract). These extras suggest a valuable transaction, and thus price might play a smaller role than usual in the decision-making process. Target audience members become customers when they perceive good value from a purchase, who will weigh up the benefits against any costs. Since price is the most common cost shoppers think about, setting the right price is harder than most marketers believe.
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