Importance of Pricing

Pricing of a product by the company is as important as eating healthy food for the body, the moment one eats the unhealthy food he or she is exposed to health risk in the same way in the case of companies if the pricing of good or service is not proper than the company is exposed to financial risk. Given below are the reasons due to which pricing is important for the company –

Importance of Pricing

  1. Pricing helps the company in recovering costs which the company has incurred for making the product, so for example if the company has incurred $5 for making a product and company decides to charge $4 only then it will not be proper pricing as at $4 company is not even recovering the cost it has incurred to manufacture the product and when the company is not even able to recover its cost than it will go bankrupt soon.
  2. It helps the company in earning profits which can further be used to expand the capacity of the company, so in the above example if company charges $7 for its produce than it will be earning $2 per sale which is nothing but the profits and when the volume of sales rise than it can lead to bumper profits for the company which then can be used to further augment the production capacity and also increasing the workforce in the company which in turn will help the company in becoming big.
  3. Pricing also helps the company in combating competitors because business has stiff competition and when products are same and competition is tough than pricing plays the key part in attracting customers from the competitors. Hence for example in the case of homogenous products company has no option but to compete on the basis of pricing of the product, lower price means more sales in comparison to its competitors.
  4. Pricing also helps the company in creating a brand in the minds of brand conscious customers, so for example brands like BMW in car segment, iPhone in mobile segment, Reebok in shoe segment and so on are all brands which are known for their higher price and consumers buys these products not only for their features but also due to their higher price as they attach more value to higher-priced products than lower priced products.
  5. Pricing also helps the company in deciding the marketing strategy of the company because if the price of the product of the company is high than it will market its products on the basis of unique features of product because if company wants to sell high priced product then it needs to make the features of product popular and if the price of the product of the company is low than company will market its products on the basis of low price as consumers first see the price and then see the features.

As one can see from the above that pricing plays very important part in not only in survival and profits of a company but also in deciding marketing strategy of the company and helping the company in making a brand in the minds of the customers.

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