PRODUCT PRICING: IT'S IMPORTANCE FOR FIRMS / BUSINESSES

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In the previous post on pricing, I talked about pricing and the factors that affect price determination by manufacturing firms. In this post, I will be talking about the importance of pricing.

How Important Is Product Pricing To A Firm?

Product pricing is absolutely important to a firm because without it, a product wouldn't have worth. Price attaches value to a product and makes it sellable.
You can't sell a product that doesn't have a price tag on it, except it's going for freebie.

Price do not always maximize profit.
How a firm sets the price of its product usually sends a message to the customer / consumers about the business, product, or service thereby creating a perceived value on them.
This may affect the brand, image or position of the firm in the target market.

These are some Importance of Product Pricing

• Pricing creates the first impression about a product
  A product's price is the first factor a customer notices and this creates an impression in the customer's mind and may influence him to purchase after comparing the actual price of the product with the quality, the perceived value or overall benefits offered by the product.

• It is Flexible
  Pricing is the only element in the marketing mix that is flexible. It can be easily modified and updated within short period of time based on some elements and needs arising, unlike other elements like promoting, place, product features etc, that take time to implement.

• It Determines Profitability.

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Of all the marketing mix, price is the income generation tool. It is used to determine a firm's sales revenue and profitability. It also drives sales and builds customers' loyalty. Therefore a firm should set the price at the margin where it can generate profit.

• It serves as competitive weapon to gain market share
  The price a firm sets for their products determines if they will have more or less competition in the market, which may affect their share of the market. Some firms set low prices for a given period of time, to help push the products in the market to attract customers, retain market share and competition too.
  After gaining the market share, the firm can then set the price at the level which won't make the customers to leave
  For example, OPay started with this strategy. They introduced OPay ride where each ride a customer books, the person will pay fifty naira after they gained entrance in the market, they set the standard fare for a ride.

• It Symbolizes Value
  The price of a product determines the value customers will pace on it. When a firm sets high price for its product, customers will perceive the product to be of top quality due to the high price tag on it. Ordinarily, no business will set the price of the product high if the quality isn't worth it.
  But when it's lowly priced, the perception is a product with an inferior quality.

Price is usually an indicator of quality, so a firm's price needs to reflect its brand.

• It Aids Increase in the Demand For A Product
  In some cases, prices can be used to increase demand for new or existing products and boost sales.
  Setting a fair and affordable price in this case is advisable as it will attract customers to a business and when demand becomes high, the firm can consider increasing the price but it should be considerable enough to avoid loosing customers.
  Therefore price is a very important element in sales promotion.

Sometimes, a firm may decide to give sales discounts, rebates for products.
This is done to either increase sales or push the product in the market. This strategy may send a message that the firm is having a difficult time selling the products at regular price or that customers have limited time to purchase.

The importance of product pricing is numerous, and it is of utmost importance that a firm considers its business objectives first when creating a pricing strategy.

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