Paragraph: In the narrowest sense, price is the amount of money charged for a product or a service. More broadly, price is the sum of all the values that customers give up to gain the benefits of having or using a product or service. Historically, price has been the major factor affecting buyer choice. In recent decades, however, nonprice factors have gained increasing importance. Even so, price remains one of the most important elements that determines a firm's market share and profitability.
Price is the only element in the marketing mix that produces revenue; all other elements present costs. Price is also one of the most flexible marketing mix elements. Unlike product features and channel commitments, prices can be changed quickly. At the same time, pricing is the number one problem facing many marketing executives, and many companies do not handle pricing well. Some managers view pricing as a big headache, preferring instead to focus on other marketing mix elements. However, smart managers treat pricing as a key strategic tool for creating and capturing costumer value. Prices have a direct impact on a firm's bottom line. A small percentage improvement in price can generate a large percentage increase in profitability. More important, as part of a company's overall value proposition, price plays a key role in creating customer value and building customer relationships. "Instead of running away from pricing," says an expert, "savvy marketers are embracing it".
The price the company charges will fall somewhere between one that is too low to produce a profit and one that is too high to produce any demand. It summarizes the major considerations in setting price. Customer perceptions of the product's value set the ceiling for prices. If customers perceive that the product's price is greater that its value, they will not buy the product. Likewise, product costs set the floor for prices. If the company prices the product below its costs, the company's profits will suffer. In setting its price between those two extremes, the company must consider several external and internal factors, including competitors' strategies and prices, the overall marketing strategy and mix, and nature of the market and demand.
