week 7 discussion

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University Canada West *

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621

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Marketing

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Feb 20, 2024

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Why is pricing so important to the marketing manager? According to Monroe (2002), pricing choices are among the most critical managerial decisions because of their strategic nature and complexity. These choices significantly affect the company's bottom line, profits, and capacity to compete in the marketplace. Marketing managers must consider a wide range of factors when setting prices, including the product's value proposition, the target market dynamics, the competitive environment, the cost structure, and the organization's goals. Morris (1987) argues that setting prices for goods and services is one of the most crucial and fundamental marketing decisions a company can make. Furthermore, pricing functions as a multifaceted instrument that influences consumer perception, market positioning, and growth of brands. Carefully establishing a price can influence buyer behaviour by sending quality, exclusivity, or affordability indications. Marketing managers may use this facet of price strategy to accomplish various goals, including increasing market share, boosting consumer loyalty, differentiating products, and increasing profitability. The price of a product is a symbol of its economic worth and social prestige, as Wieseke et al. (2014) stress. Managers must carefully adjust prices to send the right messages to their target demographic, considering their needs and wants . Therefore, price assumes a crucial importance for the marketing manager. How does price allocate goods and services? Product and service distribution is partially facilitated via price in a market economy. The forces of demand and supply ultimately set the prices of goods and services and use the pricing mechanism to exert an impact on the distribution of resources. The purpose of prices is threefold: as a rationing tool, a signalling mechanism, and an incentive system (Mahr, 2023).

 Rationing: Rationing occurs when users compete for limited supplies by paying different prices. When demand exceeds supply, prices increase, discouraging some purchasers while encouraging others to sell. As a result, supply rises and demand falls, creating balance in the market. When there is a limited version of a vacuum cleaner, for example, the price will be high so that only those who can and are willing to pay the most will be able to get it (Econ, 2023).  Signalling: The price mechanism communicates market conditions to buyers and sellers. The market players receive and process information through price changes due to shifts in demand and supply. For instance, when there is a greater oil demand, the oil price goes up. This sends a message to oil producers that they need to boost their output while also sending a message to oil users that they need to cut back on their usage or search for other options (EconomicsOnline, 2020).  Incentivizing: The price mechanism incentivizes buyers and sellers to respond to the signals the market sends. A change in the price of a product or service generates profit or loss opportunities, thereby incentivizing market participants to modify their conduct. For instance, when the cost of a product or service increases, it incentivizes producers to expand their output while decreasing customer demand, and vice versa (EconomicsOnline, 2020). References Econ, M. R. (2023, November 12). Concept 11: Allocation Strategies . Retrieved from Georgia Public Broadcasting: https://www.gpb.org/education/econ-express/allocation-strategies

EconomicsOnline. (2020, January 13). Rationing and Incentives . Retrieved from EconomicsOnline: https://www.economicsonline.co.uk/competitive_markets/rationing_and_incentives.html/ Mahr, N. (2023). Price mechanism definition, impact & graph . Retrieved from Study.com: https://study.com/academy/lesson/price-mechanism-function-graph.html Monroe, K. B. (2002). Pricing: Making profitable decisions (3 rd ed.). New York. NY: McGraw- Hill Book Company. Morris, M. H. (1987). Separate prices as a marketing tool. Industrial Marketing Management, 16 (2), 79–86. Wieseke, J., Alavi, S., & Habel, J. (2014). Willing to pay more, eager to pay less: The role of customer loyalty in price negotiations. Journal of Marketing, 78 (6), 17-37.

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