(11) Pricing & selling

Price vs Value

Price: the amount of money charged for a product in service.

Value: the perceived benefits the customer receives, and may include demand (of product) or additional costs not tangible (such as experience, skill, convenience/not switching to another product).

Facts about pricing:

• The only marketing mix element that produces profits.

• The only element that’s flexible, i.e. can be changed quickly.

• Most significant factor affecting buyer’s choice. Considered a double-edged sword since:

  • Too high, buyers may turn away.

  • Too low, buyers become suspicious.

Price handling

Not often handled well. Ex, a 10% cut in price may reduce profits by 50%/

Ex. Product price: 100 EGP

Cost: 80 EGP

Profit = 20 EGP

If the company reduces the price by 10% (new price = 90 EGP), new profit is = 90 − 80 = 10 EGP. This means the profit has dropped by 50%

Common mistakes in pricing

• Price is too cost oriented (when not considering customer value).

• Prices don’t reflect current market (acc. to demand)

• Not taking into account other marketing mix components.

• Not varying prices according to different products, different market segments, or promotions

• Slashing prices to try and raise sales, but the problem could be:

  • Ineffective marketing

  • Low perceived quality

• Raising prices to increase revenue, when problem of low sales is something else.

Internal & external factors that affect pricing