Strategic Marketing Management

Price is an important element of the marketing mix. The most important factors that determine the price of a product include: the objectives of the organization, the cost of production, the stage in the product life cycle, government regulations in pricing, the nature of the competition, and of consumers in the market, and so on. Pricing objectives are based on overall organizational objectives. The objectives in general fall under: cost oriented, profit oriented, volume oriented and competition oriented objectives. The pricing strategies organizations use fall under three broad groups – differential pricing strategies, competitive pricing strategies and product line pricing strategies. Cost oriented pricing and market oriented pricing are two of the most commonly used pricing methods. In cost oriented pricing, the unit price of a product is determined on the basis of unit cost of the product. When price is fixed on the basis of price fixed by competitors, it is competition oriented pricing. For pricing decisions, a proper understanding of consumers and competitors is crucial. The competitors' likely reaction to price changes should be kept in mind when taking pricing decisions.