GCSE / Level 2 Revision Notes

Marketing - What is price & pricing?

You come across the concept of price every time you buy something – whether it is in a shop, on the move or surfing online.

Price is:

• The money charged for a product or service
• Everything that a customer has to give up in order to acquire a product or service
• Usually expressed in terms of £ per unit

You can see from the above that price is not the same thing as cost. 

The price is the amount customers pay for a product.  The cost is the amount spent by a business making the product. However, as we see later, a firm needs to take account of the cost of production when setting price to ensure that it is making a profit on the products it offers.

The price a business charges for its product or service is one of the most important business decisions management take.

For example, unlike the other elements of the marketing mix (product, place & promotion), pricing decisions directly affect revenues rather than costs. 

Pricing also has to be consistent with the other elements of the marketing mix, since it contributes to the perception of a product or service by customers.

Setting a price that is too high or too low will - at best - limit the business growth. At worst, it could cause serious problems for sales and cash flow.

So pricing is important, but it is really tough to get right.  There are so many factors to consider, and much uncertainty about whether a price change will have the desired effect.