The reasons why price is a marketing variable are obvious:
influences sales volume;
influences customers' perception of the product.
This is why it is important to have full awareness of how the “price” variable works and, consequently, how to determine it to improve the company’s overall results.
The price level is also central to product positioning: if it is set too low, it risks giving the perception of a poor product. This effect is so powerful that often, when a company wants to launch cheaper products, it creates new brands specifically to avoid a deposition effect on the already established ones. Similarly, a high price wants to allude to a high or medium-high range product; this implies, however, that the product and service must necessarily be consistent with this positioning.
The elasticity curve of demand
Among the tools available to the entrepreneur to be able to define the price in an informed way, we find the demand elasticity curve. The demand elasticity is the measure of the market reaction to a change in the price of its product. Let's imagine, for example, that a certain product sold at a price X leads to 1000 sales. If for example I increased the price by 10%, I could expect to decrease sales by the same 10%; similarly, by decreasing the price I should see sales increase by the same percentage. If this always happened, the company could raise or lower its prices without substantially changing its turnover.
In reality, the market reaction will be more or less marked depending on a series of variables closely linked to the market, the product, and the competition. Thus, a 10% price increase could lead to an extremely limited decrease in sales (and therefore result in a net advantage for the company) or cause sales to collapse to the advantage of the competition. At the same time, a price decrease could help reach a much larger clientele, with a net gain for the company, or not.
By analyzing historical and market data and possibly carrying out some tests, it is possible to draw the curve of the elasticity of demand for a given product. This is a delicate operation, which can often be completed only at the cost of many attempts.
Even from a superficial observation of the demand elasticity curve, one can understand how fundamental the price factor is: getting it wrong can cost a lot, in terms of margins. To these considerations strictly linked to the economic account, others are added, linked instead to market positioning.
It is therefore worth reviewing the different methods of determining the price, trying to understand what the strengths and weaknesses are for each and how a synthesis can be found.
NOT SURE IF YOUR PRICES ARE CORRECT? WE CARRY OUT MARKET RESEARCH TO IDENTIFY THE MOST CORRECT PRICING FOR YOUR PRODUCTS
The most common pricing methods
An incorrect price is a very difficult problem to solve. There is no communication strategy, nor creative idea that can improve the situation when you start from a price that scares customers because it is too low, or that drives them away because it is too high.
How can we then arrive at establishing the correct price? Basically, we can start f
