Think about price

Why

Price is the most straightforward marketing lever to adjust in the marketplace. A business can change a price from minute to the next and one day to the next but coordinating other aspects of the marketing mix are harder to change such place, promotion, and product.

The place, location of the business, physical or virtual, is what maintains continuous patronage for the company. If a business were to move, not only will the move take time, but the sales will take time to recover with the adjustment. The promotion of a firm’s new message, or product, takes time to communicate the idea to the market. Any improvements, modifications, or added features to a product takes time to develop.

All this time, wondering if the changes are going to work allows the competition to swoop in and take customers from the business. Price gives the firm instant feedback with every move, and therefore a company can make faster decisions to adjust the price, some tactics require time, but all price adjustments yield quick results some bad and some good but all quick.

Adjust prices gives a business revenue control, Prices affects the future, perception of customer value; price is the weapon, prevents customer losses and decreases the customer churn rate, amount of customers a firm gains or losses.

Revenue Control

When the price of a product changes, the revenue of the business changes, usually when the seller raises rates, there is a drop in quantity sold, and when a seller drops prices, there is a rise in quantity sold.

The seller can control the revenue of the business in this basic model assuming the seller sells a superior product at fair prices, and promotion has been just as valid for all competitors.

Supply and demand and price elasticity are all things the affect of the revenue generated for a business. When Supply does not meet, demand potential sales are lost. Raising the prices will increase the income generated per unit sold.

More units most are sold at a lower price to generate the same revenue goal exhausting the resources of the company such as labor, material, equipment, and utilities. To make the maximum amount of profits, the business must find the price equilibrium, the point at which the highest price charged generating the highest demand.

The price elasticity affects the demand for the product, which affects the total units sold. When there’s high price elasticity, there is a more significant change in product demand.

Example I

iPods sell for $900, $500, and $900, 2000. The first price of $900 sales stays steady but $500 price, sales increase buy 50 units, and the price of 2000 decreases the sales by 100 units making this product very elastic. A large change in demand makes s product elastic.

Example II

Gas sells for $5.00, $3.00, and $8.00. The first price of sales is steady. The second price of $3.00 sales increases by 10 gallons. The third price of $8.00 the sales stay steady with very little change in demand, making this product inelastic. Small change in demand makes product inelastic.

Price Affects the Future

Price controls margins per unit and the more margins a seller has per product; the more profits can be generated which increases the liquidity of the business.

Margin the gap between the seller’s cost and the buyer’s price.

When a business has more liquidity, the company has more leverage. Revenue increases the purchasing power for the industry, making it possible to grow the market faster and with ease. The business can use the advantage to obtain critical resources, for example, buildings, labor, equipment, software, and systems to improve the company.

Perception of Customer Value

Buyers latch on to price as the first signal of value, after which must be confirmed through word of mouth, advertisements, social media, and other communication tools. The price indicates the status of a product, the value of a product, the potential quality the product has, and the exclusive nature of a product.

The market is full of consumers/ buyers that do not know the value of products. The game show The Price is Right has contestants bid on everyday products and still get common items value wrong. Yet it is a common belief the buyers know the value of things, but they only know it is the perceived value of things.

Repetition is the key to pricing a product; the more consumers have an association with the seller’s price with the product, the more the buyer accepts the price to be universal and, therefore, the new established value of the product.

Communication of a price with the product must happen for the buyer to understand what the seller’s suggested value for the product is. Increase communication and teach the public about the price.

Price Is Weapon Against Competition

The easiest weapon to unleash unto the competition is not promotion, or location but price. With pricing power, the industry has no choice but to follow the lead of the company that holds this power and adjusts the price of other sellers’ prices.

When the company wants to and can afford to lower prices, this places other firms at risk if their position is the lowest price on the market.

Prevention of Customer Loss aka Switching Price

Switching prices or switching costs are the value a buyer exchanges for leaving the current seller for another firm. Switching prices does not always have to be a price that must be billed to the customer; it can be the loyalty benefits left behind.

The types of switching cost are:

Companies apply switching prices to retain customers and decrease the churn rate. When a customer feels the need to jump ship or change firms the above will prevent the customer from changing because of fear of starting over or losing something.