Abstract This chapter discusses pricing from the perspectives of demand, cost, and perception. The classical economics concepts of demand revenue curves and price demand elasticity are explored. Break-even pricing and its elements are introduced. Many of the marketer-created perceptional pricing approaches and concepts such as value pricing, price lining, price skimming, and price penetration strategies are discussed from the consumer behavioral point of view with related visuals that have been developed in the theory.
Keywords Market pricing • Production costs • Demand • Price elasticity • Price perception • Price skimming • Penetration pricing
Price is the main exchange medium in any transaction. There can be no exchange without the right price. Moreover, price is strategically the most flexible marketing-mix element. Put simply, you can easily change the price any time you like, but you cannot change your product, promotion and/or branding strategy, distribution, or product availability overnight. Thus, price is one of the most competitive marketing tools among all marketing- mix elements. Ultimately, it is the only one that can generate revenue and hence borrows some essential conceptualizations from economics literature.
Three important factors directly and indirectly impact price and pricing decisions: demand for the product; the cost of manufacturing the product and the market structure; and consumers’ perception of the value elements of the product compared to other alternatives available in the market.
© The Author(s) 2017
S.U. Kucuk, Visualizing Marketing,
Classical economics discusses price as the main exchange element of value and assumes that all consumers makes rational decisions and prefer the cheaper products to maximize their benefits. In other words, classical economics does not recognize emotional and spontaneous decision-making processes. On the other hand, marketing theory, influenced by psychology and sociology, assumes perception of product benefits and/or value elements, and hence decisions, can also vary from consumer to consumer and may be spontaneous and emotional. Thus, in marketing theory, price can be defined as many interacting elements in a functional form as follows:
The following sections will address pricing elements individually.