The only component of the marketing mix that generates returns is called price, however, others only generate costs.
Price can be easily altered, whereas, other product aspects like channel obligations and product attributes cannot be changed so easily.
Therefore, price is the most flexible component of the marketing mix. For a manufacturer, price is that amount of money (or in case of barter trade, goods, or services) which he will receive from the buyer for his product.
For a customer, price is something he sacrifices for owning the product or service, and therefore, it displays his perception of the product value. It can conceptually be defined as:
As per this equation, the numerator as well as the denominator is crucial while making price decisions. A product’s price is based on the seller’s decision regarding its monetary worth to the buyer.
The method used to convert the worth of a product or a unit of service into quantitative form (i.e., rupees and paisa) at a given time for customers is called ‘pricing’.
According to Prof. K.C. Kite, “Pricing is a managerial task that involves establishing pricing objectives, identifying the factors governing the price, ascertaining their relevance and significance, determining the product value in monetary terms and formulation of price policies and the strategies, implementing them and controlling them for the best results.”
Pricing can, therefore, be defined as the task of deciding the monetary value of an idea, a product, or a service by the marketing manager before he sells it to his target customers.
In particular, pricing is the process of formulating objectives, deciding the flexibility that is available, devising strategies, setting prices, and implementing and controlling the above elements.
Pricing is one of the strongest marketing instruments that the company possesses. Pricing decision is an important aspect of a marketing plan.
Thus, marketers need to take exact and premeditated pricing decisions. Pricing of services is done in a very different manner than that of pricing of products and there are various reasons responsible for it.
Services can be distinguished on the basis of their price, i.e., a higher price of service indicates a better quality of service.
Besides pricing, another important factor that is considered while distinguishing goods from services is the cost component.
When comparing a service with a product, it can be seen that the fixed costs of services are higher and the variable costs of services are lower.