The Place and Importance of Price in Marketing Mix

What is Price?

Price is the value consumers pay to acquire a product or service. The Turkish equivalent of the Arabic-origin Ottoman Turkish word "price" is "eder."

From a definition standpoint, price reflects the exchange value of products, services, or ideas in monetary terms. Price signifies the value of the purchased product.

Factors Originating from the Business

• The identity of the business, including its past activities, mission, vision, goals, strategy, and policies, are factors that influence pricing.
• Additionally, whether the business will enter international markets and how it will operate in those markets also affects pricing.

Product/Service Related Factors

In pricing, the uniqueness of products or services, their differences and advantages compared to their counterparts, if any, are crucial. It's important to note that these factors can vary depending on the country's level of development, economic situation, and consumer preferences and habits.

Environmental Factors

• Environmental factors influencing pricing include:
• Environmental factors within the business's control.
• Uncontrollable environmental factors of the local country market.
• Uncontrollable environmental factors of the target country market.

Market Related Factors

• Market related factors include the quantity and characteristics of the population in the market, per capita gross domestic product (GDP), customs duties, consumption habits, openness to innovation by consumers, demand variability, and inflation.

Interaction of Price with Other Marketing Mix Components

Price is one of the marketing mix components used by businesses to achieve marketing objectives. Factors such as product design, distribution channels, and how marketing communications are conducted are crucial in determining pricing. Pricing not only affects other components of the marketing mix but is also influenced by them. For example, if a product is positioned for the upper income bracket, the price will increase due to higher costs.

Capacity within the business is also a determinant for price. Marketing management activities are effective in determining the appropriate price for the product or service offered. Whether the price set in marketing activities is perceived as valuable by the consumer is relevant. If this value is perceived as high, the exchange does not occur. Value perception is abstract and varies from consumer to consumer. On the other hand, costs incurred by businesses to offer a product are generally tangible and measurable. Businesses must consider internal and external factors, marketing strategies, competitors' situations, market demand, and pricing methods in creating value and achieving profit.

Businesses that price based on value, cost, and profit concerns; internal and external factors; marketing strategies; competitors' situations; market demand; and pricing methods should also consider other marketing components more important. Although pricing is essential for the success of marketing activities, it is not sufficient on its own. In the marketing mix, the importance of price can be summarized as follows:

• Price is one of the main factors affecting success or failure in business.
• It is crucial in determining profitability.
• It provides information to consumers about the value of the product or service.
• For businesses, appropriate pricing is a significant tool in competition. It can prevent new competitors from entering the market with competitive prices.
• It can be used as a standard for exchange.
• It can be used as a differentiation tool.
• It offers ease of measurability.
• Price is effective in rational allocation of scarce resources and establishing supply-demand balance in market economies based on free competition.

Pricing Objectives

• Maximizing profit
• Achieving target profitability level
• Benefiting from demand variability
• Maximizing sales revenue
• Maintaining price stability
• Preserving current market share
• Supporting the sale of other products

New Product Pricing Strategies

1. Cream Skimming:

• Entering the market with a high price to capture the cream of the market.
• This method allows for fewer but more profitable sales.

When does it work?

• The product should have high quality and image to support its price.
• Producing in small quantities should not significantly increase unit costs.
• Ensure that competitors won't easily enter the market.
• There should be a target audience willing to buy at any price, without much price elasticity.

2. Market Penetration:

• Keeping the entry price low to quickly enter the market and penetrate deeply.
• Attracting more consumers' attention in a shorter time frame to gain high market share.

When does it work?

• Market should be highly price sensitive (elastic demand), so that low price becomes a preference and drives growth.
• As sales volume increases, costs need to be reduced.

Product Line Pricing Strategies

• Product line pricing
• Optional product pricing
• Mandatory product pricing
• Product-based pricing
• Product bundle pricing
• Product line pricing
• Optional product pricing
• Critical product pricing
• Product bundle pricing

Product Line Pricing:

Different pricing for different products within a product line

• Based on cost differences between products
• Based on customers' evaluations of different features
• Depending on competitors' prices

Optional and Mandatory (Critical) Product Pricing:

• Optional product pricing: Pricing of optional products or accessories sold with the main product, chosen at the discretion of the buyer (e.g., screen protector, case with a mobile phone)
• Mandatory (critical) product pricing: Pricing of products essential to be used with the main product (e.g., inexpensive printer with expensive cartridges)

Product-Based and Product Bundle Pricing:

• Product-based pricing: Low pricing for products to get rid of unwanted items that may be offered for any market
• Product bundle pricing: Package pricing to sell more than one product together (contact lens and lens solution priced together; fast food menus)

Pricing Strategies

1. Discounts

• Cash Discounts
• Quantity Discounts
• Seasonal Discounts

2. Price Differentiation by Segments:

It involves selling the same product at different prices, where the differences are not due to costs. Types include:

• Customer-based (e.g., full price vs. student discount)
• Product-based: Applying different prices for different versions of the same product, even when costs are identical
• Location-based: Applying different prices for the same product in different cities
• Time-based: Implementing matinee pricing in cinemas and theaters

3. Psychological Pricing

• Taking into account the psychological impact of pricing.
• Creating the perception that higher-priced products also have higher quality.
• Presenting the price in a way that affects consumers differently (e.g., 299 TL instead of 300 TL; one set of clothes priced at 150 TL while another at 100 TL)

4. Loss Leader Pricing

• Temporarily pricing a product below its list price, sometimes even below its cost.
• Supermarkets lower prices on certain items to encourage consumers to purchase other needs from them.
• Seasonal pricing/discounts for specific periods like holidays (e.g., New Year's, Mother's Day, Valentine's Day)
• Discounts for cash purchases during specific periods

5. Geographic Pricing

• Pricing differences for the same product in different locations based on where the product is produced
• Pricing at the point of production
• Uniform delivery pricing
• Regional pricing
• Differential pricing
• Guaranteed pricing

6. Dynamic Pricing and Internet Pricing

• Continuously changing prices to meet individual customer desires and needs
• Changing hotel room prices daily or even hourly based on demand
• Real-time changes to prices for products sold through direct marketing (phone or internet)

7. International Pricing

Different prices may be applied in different countries due to local market conditions, or the same prices may be applied everywhere.

Different Classification in Pricing Strategies

1. Cost-Based Pricing:

It is based on the traditional pricing system. In product pricing, the cost incurred by the company for the product and the profit the product will bring to the company are taken into account. All expenses such as raw materials, logistics, packaging are calculated, and pricing is done by adding the desired profit amount to the resulting cost. Market competition, overall sales volume, and the company's situation are considered when determining the price.

2. Consumer-Focused Classification:

• Penetration Pricing: Selling a new product or service at a lower price compared to its competitors to increase market share. Companies wishing to increase market share can use this strategy.
• High-Low Pricing: Applied to introduce the product to the consumer. The critical point about this strategy is that if the consumer buys the product at a low price for a long time, there is a possibility that they will search for alternative products when the prices return to their old levels. This process must be managed well by tracking and planning.
• Psychological Pricing: Presented as a marketing illusion. Product prices are written as fractional (79.90 TL instead of 80 TL) to attract consumers and encourage them to buy the product/service.