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Price of a product or a service is known to be one of the most important elements of the marketing mix which is primarily responsible for generating revenues, whereas the other elements are responsible for generating costs. It is considered to be the easiest element that can adjust itself with others. If other elements are considered, then it is likely that the other elements require a substantial amount of costs and time to adjust in proportion to the others. These elements may include channels of promotion, product features, and even promotion.

In a traditional manner, the product’s price is known to be a major determinant for influencing the choice of the buyers. Though it is a considerable fact that the non-price factors have their individual influences, but still the price of the product still remains an important factor while focusing on profitability and market share.

Companies undertake different strategies for pricing the product. In SME’s the price of the products are generally set by the owners or the top level managers of the company. However, in the larger firms, the prices are generally handled by the product line managers or the specific divisions. Even here the general pricing guidelines and the policies are set by the top management that are to be followed by the managers while pricing the products.

Setting the price: The companies are required to set their prices in accordance with the values that are delivered and perceived by the consumers. If the price of the product is higher than the value then the company will not be able to attract a large number of consumers which will harness their profits’ potential, or vice versa.

Selecting the objective of the Price: The first and the foremost step that the company must undertake are to set the objectives of the pricing that are aligned with the overall goals and the objectives of the company. This will help the company to price their products in an effective and efficient manner.

Determination of demand: the price of the product always leads to different levels of the demand and thus, has a direct impact over the marketing objectives of the company. The relation between the current demands and the alternative prices are captured to develop a pricing strategy. In the normal conditions, as per the law of demand, the demand and the price of the product are inversely proportional to each other. The higher the price, the lower will be its demand, and vice versa. Companies often like to work with those consumers that are less sensitive to the prices of the product. However, due to the increase in the use of internet, the people all around are now becoming much more sensitive towards the pricing. For example in the area of online shopping, a consumer can simply look for a particular product on different websites and can order their desired products at the best available prices.

Estimating costs: The demand of the products sets a ceiling on the price of the product that can be charged by a company. The costs of the company are categorized under two heads- Fixed and Variable. The fixed costs, as the name suggests are fixed and constant that do not vary with the sales revenue or production. But the variable costs definitely vary with the production. The higher will be the production, the higher will be the variable costs.

Analyzing Competitor’s pricing: Last but not the least, the prices of a product are set while reviewing the prices and the pricing strategy of the competitors. Before pricing a product, it is important for the companies to consider if the change in prices will initiate price war in the market.

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