The Role Of Pricing In Business

In the year 2000, there was a school of thought that come out that among all the factors that enhances the performance of an innovative product on the market, pricing is the greatest among them. Another school of thought in the year 2002 came out to debang that assession.

  • PRICING: Is any amount of money charged for a product or services. Most broadly, it is the sum of the value that consumers exchange for the benefits of having or using the product or services.
  • VALUE – INFORMED PRICING: This is the pricing practice in which the decision makers base the price of the new product on the customers’ perceptions of the benefits that the product offers and how there benefits are traded by customers against the price. The setting of p rice started before the 19th It was done by both buyers and sellers. A seller would asked for a price more than he expected whiles a buyer would also offer less than the is expected, then through the bargaining, they come into a census and agree on a p rice to the exchange. However, in the 19th Century, this strategy changed when FW. Worth, Tiffany and Co; John Wanamaker, J.L Hudson, and others advertised a strictly one price policy’’ which producers now use to set one price for their products. History attests to the fact and even in our current dispensation that price remains one of the major factors affecting buyer choice. However, price is the only elements of the marketing mix that produces revenue and also being flexible in nature – it can be changed anytime.
  • GENERAL FACTORS CONSIDERED WHEN SETTING PRICES: A company’s pricing decisions are affected both by internal and external environment factors. However, there are a lot of factors we chose to review literature on which are most important to our research work.


  1. Marketing objectives – Setting prices with relation to what you intended to achieve.
  2. Market share leadership – Setting low prices to gain large market share
  3. Product Quality Leadership – Setting higher prices for products based on its high quality.
  4. Cost – Setting prices on a product to re-corporated all losses made.


  • The market and demand – Knowing the relationship between the demand and the price set with relation to the market.
  • Consumer Perception of Price and value – Pricing based on what consumer think of your product and whether the money they would pay worth it.
  • Price elasticity of demand – Knowing how responsive demand would be when pricing or price changes.
  • Competitors cost, Price and offer.


Many organizations producing patent-protected product can chose between two strategies –

  • Market-skimming pricing
  • Market penetration pricing


This involves setting high prices to skim revenue layer by layer. When skimming, price are set; from inspection, the higher price depicts the products quality, hence, targeting the portion of the market who deem it necessary as well as meeting their aspiration. However, as time goes on, the price is reduced to attract the next price sensitive layer of the market. This strategy is very influential under conditions such as product quality and image.


Unlike skimming, market penetration pricing involves pricing products as low as possible to gain a lot of market share.  Hence, as cost of production reduces, the price is cut down further. This pricing strategy is conducive when the market is highly price sensitive so that low price produces more market growth.

Secondly, production and distribution cost must fall as sales volume increases, finally, the low price must help keep out the competition.


Demand: Is a schedule which shows the various amount goods a consumer is willing and able to purchase at each prices in a series of possible prices during a specific period of time.


All things being equal, as price falls more of a product would be demanded. On the other hand, when price raises less of a product would be demanded.


There are various factors that causes the demand of a products, these include:

  • Cost of the product in question
  • Disposable income of consumers
  • The price of the commodities
  • Taste, fashion and preference of the consumer
  • Governmental policies like taxes.


In analyzing demand – Price relationship, it can be said that there is an inverse relationship between demand and price. Thus, the higher the price the lower the demand and the lower the price the higher the demand, all things being equal. This then shifts the demand curve downwards from the top right hand corner to the bottom left hand corner.


However, in exceptional to portray like prestigious products, customers perceive higher price to portray product quality, hence, demand for such product increases no matter the rise in price.

Thus, from the curve, when price was raised from P1 to P2 more was sold, but sales decrease when raised from P2 to P3.

Moreover, in ascertaining, Price-demand relationship, other factors affecting demanding must be held constant so as to know the actual change in demand with relation to the change in price.


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