The Power of the Price

The Most Important “P”
Price is arguably the most important “P” of the four “P’s” in marketing. The price of a product/service could make or break the success of the said product. Ultimately, the price of the product/service must cover the cost of everything that goes into the production of the product — such as labor and materials. A balance of costs, customer price sensitivity, and other factors must be considered when attempting to determine prices — it is not an easy task.
Consider these four concepts when setting the price for your product/service…
Competition
Don’t ignore competitors’ pricing. The price of a competitor could drive the demand for your product down or up. Pay close attention to how your competitor prices and what they offer for the price. Walmart is a prime example of a competitor in the retail store industry by continuously offering low prices with slogans like “Save Money. Live Better” and “Every Day Low Prices” that are associated with the store. If Walmart were to raise their prices, many people who depend on the store for its low prices would be infuriated, and Walmart would lose money. In alignment with their marketing strategy, when considering setting a markup price for a product, Walmart must continue to keep prices low when determining their pricing strategy.

Factors That Make Up Your Product Cost
Many factors go into the makeup of your product cost. As stated before, the price of your product should cover the materials that go into production if you’re wanting to make a profit. When considering price factors that go into production costs, one might think back to his/her college economics class. I know for me personally, thinking about average total cost, fixed costs, variable costs, etc. brings back a flood of horrific memories filled with supply and demand curves. Evaluating these various prices can be painful at times, but doing so is incredibly integral to a profitable organization.
Different Pricing Strategies
Markups, average-cost pricing, break-even point, and marginal analysis are all different pricing strategies. Being familiar with these strategies and which would work best for you can aid in successful profitability.
- Markups are usually used by retailers and wholesalers. A dollar amount is added to the cost of a product to get the selling price. As mentioned before, Walmart uses this approach. The brand that is selling through the retailer uses them as an intermediary to make a profit.
- Average-cost pricing means adding a reasonable markup to the average cost. Examining past sales aids in determining the average cost. A con of this strategy is that changes cost in relation to output are not taken into account, so be aware when using this strategy.
- With break-even analysis, firms evaluate whether the break-even point will be met, meaning all costs will be covered. Will total costs equal its total revenue? To determine BEP in units, divide total fixed costs by fixed cost contribution per unit.
- Marginal analysis focuses on changes in total revenue and total cost from selling one or more units to find the most profitable price and quantity. This strategy shows costs, revenue, and profit changes at different times, revealing a price maximization point — the greatest difference between total revenue and total cost. This approach identifies a range of potential prices.
Alternatives and Substitutes

Pay close attention to alternatives and substitutes in relation to demand when determining your price. When customers have substitute ways of meeting a need, they are likely to be more price-sensitive, and when many alternatives exist, price matters incredibly. Comparing prices and the ability to switch brands easily makes customers more sensitive to increases/decreases in price.
The Power of the Price
The price of a product or service plays a large role in profit. Keeping these four concepts in mind, work to become efficient, reducing costs and improving value where possible.