Meaning of price
Price is the amount we pay for goods, services or ideas. The term price is known by a variety of names in different sectors of the economy. For example, price is known as fare in the transport sector; fee in education; rent in real estate and in certain services it is known as charge. Generally speaking, the price is the exchange value between the seller and buyer. So, price is the money charged by a marketer for his product or service. For the marketer, price covers the total market offering. The ultimate user considers price as a sacrifice of his purchasing power. For the buyer, it stands for quality and quantity of the service bought.
Price is the source of revenue and a prime determinant of profit for the service provider. In the service sector. price reflects the nature of relationship between customer and provider.
What is pricing?
Pricing is equivalent to the total service offering. Pricing includes the brand name, delivery and other benefits. Pricing translates the qualitative offering into quantitative terms.
Pricing of services
Pricing is a vital area in marketing. Price is one of the significant elements in the marketing mix. It is the sole and an important element in the marketing mix of a firm that brings revenue to the business. Organizations should use a sophisticated approach to pricing. While pricing the services, due regard should be given to shifts in demand, the rate at which supply can be expanded, prices of available substitutes, the price – volume relationship and the availability of future substitutes. Service companies must understand how customers perceive prices of services.
How do customers perceive?
The price charged by the service provider must be acceptable to the target customers. It should coordinate well with the other components of the marketing mix. Pricing decisions have an impact on all – suppliers, sales force, distributors, competitors and customers. Price also indicates to the customers the kind of quality of the service that they are likely to receive. For example, the menu card in a restaurant indicates the quality of its food and service in terms of price.
Objectives of pricing
A firm approaches its target market with a tailor-made marketing mix of variables. The marketing strategy of the firm represents the combination of strategic variables (product, price, promotion and place). This strategy will vary from one market segment to another. This necessitates the firm to develop pricing objectives. A firm may have a number of objectives in the area of pricing. Some of these will be long-term while others will be short-term. Also some will be primary objectives while others will be secondary. The below chart shows the various pricing objectives of the firms.
1. Survival price: Survival price is only a short-run objective. A firm follows survival price policy when there is an intense competition and changing consumption pattern in the target market. Generally, it is a low pricing objective to maintain demand for the firm’s product. Many ready-made garment sellers dealing in foreign brands like Lee, Arrow, Peter England, Van Heusen etc., have followed pricing below cost. So pricing below cost involves foregoing desired levels of profits to ensure survival. Factors such as intense competition, changing consumer wants, critical cash conditions etc., force the service provider to follow this objective.
2. Current profit maximization price: Profit maximization is the oldest objective of pricing. It is generally a long term objective. It is the opposite to the survival price. The firm charges high price that will maximize current profit of the firm. This pricing objective is set when a good demand exists for the services of the firm. Profit maximization pricing ensures maximization of profitability over a given period. The period concerned may be related to the life cycle of the service.
3. Market share price: Price helps improve market share. Market share means that portion of industry’s sale which a marketer wishes to retain Market share also represents. a sensitive indicator of customer as well as trade acceptance. Maximization of market share is adopted by those firms which are able to realize economies of scale in distribution and promotion. When a marketer attains a high market share in the market, he is able to enjoy lowest costs and highest long-term profits. A market share leader charges a low price to maintain his market sharp.
4. Service quality leadership: A service company may use a pricing policy to prove its prestige. The high price charged impresses the quality of the service. It also leads to price – quality leadership in the target market. Service offerings positioned in high price category build a quality image for the service provider. High-priced restaurants and personal care centres aim at achieving leadership in service and quality by setting ‘service quality’ price for their services.
Profit maximization cannot be the only objective of pricing. A multiplicity or mix of objectives is invariably involved. Firms seek to meet a variety-of interests through price policy. Interests may vary from one firm to another. Accordingly, pricing policy may vary. No firm is satisfied with a single objective in pricing.