Price – The Four Ps of Marketing

When the end goal is to make profit from selling a product or service, one of the key aspects to consider is the price. A pricing strategy is in the very core of a business, such that the profit, loss, success or failure of a business can be the result of a good or bad pricing strategy. For this reason, Price is an important aspect of the 4 Ps of Marketing, and can be crucial in building a good marketing strategy.

Pricing if often determined through a simples equation where a percentage is added onto of the cost of acquiring the product or offering the service. This method over simplifies the approach to pricing, and ignores real and perceived characteristics of a price that are key to having a successful product or service.

Creating a Pricing Strategy

The first step in creating a successful pricing strategy, is to deeply understand the product that you are trying to sell. This understanding should have been made clear during the first P of 4 Ps – the Product.

A good starting point for building out the price is to understand the cost of the product. Simply put, you don’t want to sell the product for cheaper than you purchased it for or else you will lose money at every transaction. The amount of mark up will depend on several different internal and external factors.

Internal Factors & The Price

The perceived quality of a product, or how premium the brand / product is can derived from several factors. One of these factors is derived from the general idea that higher quality or more luxurious products are relatively more expensive. Therefore, understanding your own companies branding, as well as the branding of the product or service can provide a clue as to how expensive the product should be.

If you are releasing a product that is meant for select individuals that have a fine taste (like our Pizza from the Product section!), your pricing should be appropriately first-rate. Conversely, if the product is a budget friendly item, it should be priced inexpensively. Pricing relative to your competitors or industry is key, here. Are you presenting a product that competes on price, and thus offering a lower cost item, or is your product more premium, and thus is relatively more expensive?

Other  internal factors to consider are the promotions that might be placed on the product. For example, if the product will have seasonal promotions, you will want to make sure that even at the promotional price, there will be a healthy profit. However, the idea of having promotions should also be examined in and of itself. Sales, promotions and discounts can create a cheap or commodity like product or service image. Conversely, little to no sale or promotions can build an exclusivity brand image.

External Factors & The Price

Once there is a clear understanding of what internal factors will effect the pricing, the external factors should be examined. External factors are the effect of pricing that you as a company have little to no control over.

Identifying competitors in the industry and what the pricing of competing products is can also assist in creating a successful pricing strategy. Comparing your product or services’ real and perceived value to that of a competitor can give you an idea of where your products price should be. Having a product that will be more cost effective will warrant a lower price. Quality products, again, would tend to be price higher than competitors.

Another external factor is the industry itself. Will the industry be able to support a new high cost competitor, or is it hyper competitive on price? Is there room for growth for a high quality (and high price) product, or will you need to take competitors’ market share by offering a low price?

The Purpose of Price

One you have a clear understanding of how, and at what price you will sell your product or service, you will be once step closer to completing the 4 Ps. The price plays a crucial role in helping define the product, not just from the internal perspective on how you want to brand the product, but also how the product will compare to the competing products or services in the industry.

Successfully defining what price, and why you want to sell at this price will give you a better understanding of your marketing strategy. Not only will you better understand where you product fits in the industry or how you should advertise the product, but you will be better able to react to changes in the industry.  

By this point in the 4 Ps of Marketing, you will have a solid understanding of your product or service, and what price you will sell it next. Next, we will take a look at Place – where you will sell your product or service!