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TSR Wiki > Study Help > Subjects and Revision > Revision Notes > Economics > The Concept of Price

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Price is the amount of money charged for a product or service. In other words it is the value, in money terms, that a consumer exchanges for the benefits or satisfaction of having, or using, a product or service. In the marketing context, price is said to be one of the constituents of the 'marketing mix', which also includes quality, design, advertising, marketing and distribution as well as price. However, one critical difference between price and other ingredients of the marketing mix is that price produces revenue while the other elements produce costs, so that the setting of an appropriate price is critical for a company's success.

General factors determining price

There are many factors which have a bearing on how managers finally decide on their pricing strategy. They may be classified as internal and external. One of the most basic, internal factors is the marketing objectives of the firm. For example, some firms may decide to maximise current profits because they may have a product which consumers are prepared to pay a high price for or they may wish to pay out more dividend in order to reward their shareholders to maintain their confidence. Other companies may wish to maximise market share by setting price as low as possible in the belief that if they are successful in gaining a larger share of the market it will allow them to enjoy low costs via economies of scale and thus maximise long-run profits. On the other hand, some companies may be more interested in strategies which give them product quality leadership. For example, the German company Bosch produces washing machines and dishwashers which are more expensive than its rivals under the slogan the 'the repair man doesn't have enough to do' - a classic product leadership comment.

A second internal factor affecting price determination is the marketing mix strategy. In other words, this relates to what price is being set, in comparison to the company's pricing strategy. For example, undercutting the market or over pricing. This usually depends on the contextual operation of the workplace. Sizeability.

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