10 Importance of Pricing To The Firm, Customer, and Economy

Importance of Pricing

Why pricing is important? Pricing is one of the crucial elements of marketing programs. Since the competition has reached the top, varieties of products prices are out there, customer sovereignty is maintained, and the importance of pricing has been increasing extensively.

Pricing is not important only to the price maker (business firm), but it is also important for economic development and customer welfare as well. Here, we can understand the importance of pricing from the viewpoints of the economy, firm, and customers’.

To The Economy

The pricing may affect the nation’s economy in various ways. The primary importance of pricing to the economy can be mentioned below:

Allocation of Goods and Services: The primary purpose of pricing is to allocate goods and services to the various members of society. In doing, so pricing aims to develop the free market economy. As per this, most valued items are distributed to those who demand them. When resources are scarce, individuals with better purchasing power are in the position to afford them. In this reference, pricing is also the allocation of resources.

Regulation of Factors of Production: Pricing influences the price paid for the factor of production. The price of products determines the price paid for wages, rent, interest, and profits. High wages attract labor, high-interest rates attract capital, and so on. As such, the government has to regulate new monetary and fiscal policies. In this regard, pricing is the prime regulator of the economy.

Saving: Pricing has a direct impact on the saving of the country. When the pricing of products and services is high customers face difficulties to cope with it. High pricing is hence inversely proportional to the consumer saving and hence the country’s savings. The government hence uses pricing as a key indicator to analyze its economic situation and take necessary interventions.

Source of Income: The government of every country uses the pricing system to generate income for their operational and development work. The government determines the price for public utilities, security, law, social order, etc. When the pricing system is effective there is smooth income generation on the part of the government which in turn has a positive impact on the economy. Pricing as a major government activity hence has significant importance to the economy.

To The Firm

The primary importance of pricing to the firm is mentioned below:

Determinant of the Market Demand: Pricing is the major determinant of the market demand for products and services. Pricing represents the assessment of the value customers see in the products or services and their willingness to pay. Usually, high pricing leads to low demand and low pricing leads to an increase. However, if a customer has high regard for a product, it won’t matter.

Source of Revenue: Among the 4Ps of marketing, pricing is the only element that generates revenue. In this regard, the price is the most important factor that determines the profit. As per the situation, the firm increases or decreases the price of its products to increase its sales volume leading to a continuous source of revenue and profit.

Competitive Tool: Firms often use pricing as the key marketing tool to survive and succeed in the competitive marketing environment. The right price helps in sales increase and market share leading to adequate revenue and profit generation. In this reference, the pricing greatly influences a firm’s competitive position.

Position: Pricing often sends a message to customers about the firm and its products and services. This in turn has a direct impact on the position, brand, and image of the firm. For example, if the products are priced high, it may create a perceived value of a high-quality product in the mind of customers.

To The Customer

The primary importance of pricing to the customer is mentioned below:

Selection of Goods and Services: Pricing is important for the customers in the selection of goods and services offered by marketers as per their financial capacity. Depending upon the price, the customer can make a decision about the products they should buy. As such, the price-sensitive customer will go for low-priced products and vice versa.

Quality: Pricing also makes customers confident about the quality of goods they buy. Generally, high-priced prodcut makes customers perceive them as quality products, and low-priced products are perceived as low-quality products. Hence pricing is a tool that helps customers to determine the quality of goods and services.