Written by: Marijana Bjelobrk Best practices in price monitoring 2.2.2023.Reading Time: 6 minutes
When studying marketing mix, you will learn that out of all elements, 4Ps or even 7Ps, only one element directly generates revenue.
Now, can one P be more significant than others in the marketing mix? Can you create a good marketing strategy without considering each P as crucial for the success of your business?
If we look from that perspective, every element of the marketing mix represents an expense for the business only the price brings revenue, then it is not surprising that many emphasize the price as the most important P in the marketing mix. But there is more. Stick with me to learn more about price and pricing strategy.
Marketing Mix
A marketing mix is a set of elements utilized by a business to reach its marketing goals in its target market while, ideally, satisfying customers’ needs. The original set of elements was the 4Ps, which dates back to the 40s of the last century. The founder of the 4Ps was E. Jerome McCarthy. He labeled product, price, placement, and promotion as the pillars of a marketing strategy and business plan. After a time, when the way of doing business, as well as the needs of customers, evolved, the marketing mix expanded to the 7Ps. The original elements expanded with the rise of globalization and digitalization, and the marketing mix has included the following Ps: people, process, and physical evidence.
Changes in the marketing mix occurred when companies realized that the focus of business should be shifted from the needs of the company to the needs of the customers. In recent years, customers’ general consciousness and perspective have been changing rapidly as digitalization influence purchasing process and require a refined marketing approach.
Today, people will, without hesitation, pay more money for a brand if they share the same beliefs, if a customer considers it socially responsible, or if it raises awareness about the issue a customer fight for, even if product quality is not in alignment with a price.
Therefore, businesses, especially marketing professionals, must follow trends and daily hot topics and listen to society to stay on top of the market and accordingly adjust prices. With the rise of the cancel culture, all businesses are at risk of losing everything due to one mistake. Customers are engaged more than ever, and the opportunity given by social media allows them to speak out and criticize virally.
Marketing Mix Price
In economics, price is defined as the amount of money that needs to be paid to purchase a product or service. Price affects people’s buying decisions and vice versa. The law of supply and demand describes how prices vary depending on the supply of a product or service and its demand by consumers in the market. In the free market, supply and demand interact and naturally determine the market price.
There are three basic principles of the law of supply and demand:
- When demand exceeds supply, the price rises, just as when supply exceeds demand, the price falls.
- A price increase will eventually decrease demand and increase supply, while a fall in price will increase demand and reduce supply.
- The price itself will strive to reach the point where demand equals supply.
The economic principles and fast-paced eCommerce industry determined the price to be subject to change. While considering market forces of supply and demand, the real and perceived value of a product or service, and competitors’ prices, marketers must set prices that will bring revenue to businesses.
Why is the price so important in Marketing Mix?
Once established and set, marketing mix elements must be revised and updated if the industry, market, or customers dictate the need for change. Still, one of the elements is subject to the most frequent changes. That is the price. eCommerce and automatization of business processes influenced the ability to increase the frequency of price changes, even several times a day, according to market trends or competitors’ prices. To gain a competitive advantage, businesses use price as a key weapon. They raise prices to increase the value of products and services or significantly reduce them to increase sales. There are numerous pricing strategies to choose from. You must tailor one to your buyer persona, competitors’ pricing, and industry, base it on the analysis of historical data, and evaluation of your business’ pricing potential.
How businesses have the opportunity to monitor prices and have insight into various pricing reports, clients do too. Clients and leads have numerous ways to get an insight into historical pricing data reports or pricing trends of a specific brand. Not to mention pricing comparison tools that, in a few seconds, compare prices of similar products across some of the biggest industry competitors worldwide.
In the era of online shopping, the marketing mix has been adjusted to the digital world, but all the Ps remained crucial to forming a successful business model. As mentioned, many customers polished their buying habits and chose products differently than before. In eCommerce, the appealing design of an online store, website loading speed, and delivering and returning experiences influence buying behavior. However, price is still the biggest buying determinator for the majority. Luckily for businesses, only minorities can afford luxury brands, which is why large retail chains and mass production bloom.
The competition in almost any industry is fierce. Companies are fighting nonstop for a competitive advantage, clients, and brand reputation. Two crucial mediums used in this fight are marketing and pricing. These two are the strategies most transparent to clients and competition and depend on each other. Pricing influences marketing budget and efficiency. Meaning if a business excessively increases prices, the marketing budget will increase, while in case of an excessive price decrement, pricing will trigger high sales volume, which improves marketing efficiency. How do you find the optimal price for your marketing budget and efficiency? Considering that product or service price influences marketing budget and efficiency, to optimize marketing processes, price should be optimized prior to everything.
Price Optimization
The definition of price optimization, according to the Price2Spy eCommerce Pricing Dictionary, is basic, it states that price optimization determines the product or service price that delivers the maximum profit to a business. It is an ongoing process of analyzing customers, competitors, and market data to find the most optimal price point.
In the same way that unoptimized price affects marketing, it affects customers. If the price is set too high, customers will switch to competitors with more affordable prices. If it is too low, customers will question the quality of your products. Price optimization aims to determine the best price to attract and retain customers, maximize sales, and increase revenue.
Why did we say that this is an ongoing process?
Constant changes in trends and demand and a large number of competitors around the world mean that the market price changes frequently. In highly competitive industries, even several times a day.
The process itself is demanding and takes time and resources if it has been performed manually. Some of the tasks that are part of the process are price monitoring, data extraction and analysis, and price adjustments. If you are a business that sells hundreds of different products, this process is initially impossible for such a company and needs to be automated.
Along with price optimization, some of the most experienced and reliable pricing tools offer repricing services allowing you to create a set of repricing rules and enable a fully automated pricing process. This business decision would benefit your organization in terms of efficient time and resource allocation. While the eCommerce business SaaS tool takes care of the P that brings revenue to your business, employees can focus on decision-making and creative thinking processes.
To sum up, price is one of the pillars of the marketing mix and any business plan. It is a powerful tool for competing and the only revenue generator. Also, it is the most flexible element that requires continuous monitoring and revision. Despite the often shifts in buying behaviors, price is still the main factor influencing buying decisions of the majority.
We hope we have answered the question of why the price is so important in the marketing mix. We let you decide whether the price is the most important P of the mix. However, keep investigating pricing best practices and importance.
