Prezzo
The Price: What it is and How it is Determined
Price can be defined as the value of a good or service expressed in money, which varies based on supply and demand and must correspond to the relationship between the total revenue desired by the company and the quantity produced. Cost, on the other hand, represents the sum of total cost and profit margin.
In the field of marketing, price is considered one of the 4Ps of the marketing mix, which are the fundamental variables for launching a new product, for varying the price of an existing product, or for reacting to price changes in the competition.
Pricing and competitiveness are two important concepts for both the company and the customer. For the company, price represents the essential source of formation for revenue and profit; for the customer, it is the monetary translation of their positioning.
Influencing Factors
The definition of the price of an internationally traded product is influenced by various internal and external factors.
Among the internal factors, marketing objectives and costs incurred can be mentioned. Companies can choose two main objectives: that of market skimming, in which the company chooses to enter the market with a high price to eliminate customers who are not willing to buy at that price, and that of penetration, in which the company chooses to enter the market with a low price to attract as many customers as possible and cut out the competition.
External Factors
External factors that influence price include the market and demand, competition, fluctuations in exchange rates, and anti-dumping legislation.
The market and demand represent the main external factor in determining price. When demand increases, price also increases; if demand decreases, price also decreases. However, competition can intervene in influencing the price.
Marketing Mix Variables
The main objective of marketing mix activities is to balance the four fundamental variables that are indicated as the 4Ps: product, price, placement, and promotion. Price is the only lever that, in addition to generating costs, can also generate revenues.
Price fixation involves a series of decisions regarding a company's price policy. The main factors that impact price depend, as seen, on internal and external factors. Price type is the study of the characteristics of price application, as well as its reasons for being.
Competitiveness of price is another fundamental variable of price. It must be set in a way that ensures a good quality/price ratio without damaging positioning, but it must be able to generate revenue and profit.
In summary, price is an important concept for every company, and attention must be paid to its determination to achieve business objectives and ensure success in the market.
