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Role and importance of pricing

Updated on June 19, 2013
Pricing of a product
Pricing of a product

Importance of pricing

Pricing is an important aspect of Marketing. So it needs to be done carefully. That is why organizations formulate pricing policies and strategies to fix the price of their products. Pricing affect the sales as well as the profit of the company. It is an important task. It is a factor which determines the acceptance of the product in the market thereby it determines the future of the product in the market. The first sept in pricing is to determine the base price of the product, which includes the decision on pricing objectives.

If we want to get a product from the market we have to pay some money for it. Price is the money paid by us for a product. Therefor, Price is the exchange value of a product expressed in terms of dollar/Euro/Pound/rupee/yen or any other monetary unit.

Role and importance of pricing in marketing

Any product or services which is of commercial value has a price. Not only the physical products has a price, but also the services provided has a price. We use different names to call the price of a service. For example, the price for the services of a bus, train or airways are called "fare". Rent is the price of hiring a home or a shop. The risk covered by the insurance company is known as "premium". "Tuition fee" is the price of providing education. "Interest" is the price charged on borrowed money.

Adam Smith has defined the concept of price as "the price of everything, what everything really costs, is the toil and trouble of acquiring it".

Price plays an important role in the marketing of a product. After developing a product, the next step of the company is fixing the price of the product so as to market the product effectively earn earn some money from selling the product. If the price is not determined correctly, it could affect the sale of the product as well as the profit of the company.

A buyer's decision is largely influenced the price of the product. A company can increase and reduce the demand of a product through pricing. Pricing can also regulate the competition in the market. Wrong pricing policies can also lead to legal complications apart from general ill-will and resentment among the buyers.

Fixing a reasonable price for the product is a tough job for the marketing manager. Some people feel that the price should be as high as the customer can pay, but others feel that it should be low enough to enable the maximum number of persons to buy the product.

Pricing is an important task not only for the manufacturing concerns, but also to other organizations which provide various types of services such as advertising, banking, transport, insurance, electricity, entertainment etc. A doctor who is providing consultation service is very keen to fix a price for his service. Non profit organizations like educational institutions are interested in fixing a fair and proper tuition fee, to be charged from the students.

The basis of competition in the market for a product is mostly its price. So the competitors carefully watch the price of the product regularly and fix the price accordingly to improve sales. At the same time price affects the total sales, total revenue and the total profit of the organization.

Pricing is an important matter not only for the organization which it produce, but also for the buyer and the society. Price represents the value of the market offering to the buyers. Price can affect the demand of the product. Also price indicate the quality of the product. Increase in price may be perceived favorably by the buyers who might interpret it as a consequence of improvement of quality. According to the law of demand, a decrease in price lead to an increase in demand.

Price of a product influences profit, rent, interest, wages which are the prices paid to the factors of production - entrepreneurship, land, capital and labor respectively. Thus price acts as a regulator of economy, because it influences the allocation of the factors of production.


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      soly 20 months ago

      What a good and helping article, keep writing

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      swathi t.s 2 years ago

      it help me a lot.....

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      amol shinde 3 years ago

      Thanks to u because the total information is impt in my exam ...

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      odelly 3 years ago

      Thank you I'm studying management of business and this information is very useful

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      jongwe 4 years ago

      this has helped me answer my grade three homework question

    • profile image

      iamVIDI 4 years ago

      This just helped me in my examination revision for my Masters. Thanks a lot.

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      Bobby Isenhower 5 years ago from Crothersville, IN

      You have good points that I've saw in a lot of your hubs :) Keep writing more :)