Marketing mix refers to a series of marketing tactics used to promote goods and services to make sales. It focuses on positioning a product and selling it in the right place at the right price. Marketing mix is often based on four elements but it has changed drastically in the recent years.
One of the most important elements of the marketing mix is pricing. This guide will cover why it is so important and the must-know facts to take your marketing plan to the next level.
The Growing & Visible Importance of Pricing in Your Marketing Mix
The marketing mix is based on the 4 Ps, with pricing being one. While marketers mistake focusing on market research, promotion, product management, and distribution, pricing is important. Pricing generates revenue and connects to product promotion, advertisement, and distribution.
The 4 Ps of Marketing Mix
The four Ps of the marketing mix are price, product, promotion, and place. When combined, they create the foundation of any marketing strategy. Let’s take a closer look:
- Price covers the price strategy, list price, costs, discounts, and competitors’ prices.
- Product refers to the quality, features, options, designs, packaging, and related services.
- Promotion includes content marketing, SEO, advertising, PR, social media, branding, influencer relations, and sales.
- Place focuses on distribution channels, delivery, websites, platforms, physical stores, and inventory.
Why Pricing is Important
Pricing is a core part of your marketing strategy because it determines the profit margins, supply, and demand. Also, products are always positioned on price. Price also determines the other Ps like the distribution, packaging, discounts, shipping, and more.
The pricing in your marketing mix depends on market share, supply, cost, materials, competitive prices, product branding, and customers’ perceived product value and price. In any market, competitors are click away, and one way to stay ahead is to provide competitive prices.
Nowadays, shoppers lookout for the best convenience at the lowest price. So, your brand has to focus on properly setting prices while retaining quality. Pricing is also the most flexible of the four Ps. This variable can be changed at any time, while the other elements might increase or decrease the cost if they are changed.
Brands can also use pricing to send a particular message to their prospective customers, as it can change the way your entire marketing mix is perceived. This can consequently affect the decision-making process of customers. For instance, there is the perceived notion that high pricing means high quality, while low pricing means that you are a low-cost brand.
What You Should Know About Marketing Mix & Pricing
Now that you see how important pricing is in marketing, it should be easy to increase your brand’s focus to enhance your position in any market. There are different things you should learn about marketing mix and pricing, from pricing maturity and dynamic pricing to competitive intelligence and value proposition.
Today’s Marketing Mix Is Disrupted, Why?
It’s important to know that the marketing mix is different today than when marketers first used it. The modern world has disrupted the marketing mix, so you cannot take the basic 4Ps approach as they did years ago. The concept of the 4Ps of the marketing mix was promoted in 1967 by Philip Kotler.
Based on his focus, any brand’s marketing strategy was meant to look at what product to launch, at what price, where it would be sold, and how it would be promoted. In this era, the focus of any marketing strategy is the customer, so it is not surprising that the marketing mix has to change to meet this standard.
The marketing mix model was introduced when there were few media channels, but now we live in a digital world where brands interact with customers differently. Place and promotion are now done through similar channels, making them more complicated than before.
Another way the modern marketing mix is disrupted is the need for constant analysis and measurement, as marketers have to check how their campaigns are doing hourly or daily. And when they get these results, they are expected to adjust their strategy based on reactions.
There is a different focus when translating the 4Ps to the digital era. For instance, the product is now client or consumer, as all products are based on what the consumer wants. Brands must now study the consumer and learn what they wish to before creating products that sell.
In terms of place, convenience is the focus for all brands. The internet has become the main store for all businesses, with physical stores as secondary. Brands must learn how to leverage the online space to sell goods and services.
Also, promotion is based on communication. Rather than posting unidirectional ads, brands now focus on going viral and interacting with their customers differently.
And the marketing mix based on price is now shifting to cost, as customers want a lower cost of whatever they are buying. This also means that brands must focus on providing value to customers.
Thus, one important thing about marketing mix and price is that brands must focus on reducing cost and increasing the customer’s value of their products. Customers are now well-informed and won’t be tricked into buying products only because they are affordable. They must also have value.
How to Give Pricing the Place That It Deserves?
Pricing is an underestimated element in the four Ps. Marketers are more focused on producing the best product, getting the right place, and using the right promotion strategy, and they forget that pricing is also important. Another must-know fact is learning how to give pricing the place it deserves in the marketing mix.
To prioritize pricing in the marketing mix, you should give it equal attention like the other elements. This means that while you create the perfect product for your customers, generate promotion strategies, and get a place for selling, you should be setting the price.
Internal and external factors influence pricing in an organization. The internal factors are within the company’s control and include their fixed and variable costs, positioning and targeting decisions, processes, technology, objective and strategies. But, external factors like industry trends, competitors’ pricing, legal constraints, and the behavior of the prospective customers can also affect the price.
With that said, let’s look at how to price products and services. While there is no fixed pricing process, it usually follows a general path.
- Create the Marketing Analysis
The sensible starting point of a pricing plan is carrying out detailed market analysis and strategy. In this stage, the product and brand positioning are determined and other important segments.
- Finalize the Marketing Mix
Then, marketing mix planning is the next step. This is where you determine the product, promotion, and distribution elements, as they all decide the price.
- Analyze Demand Curve
It would be best to make another market analysis: the demand curve. This shows the relationship between price and quantity demanded.
- Calculate Costs
The next viable step is to calculate the total fixed and variable costs involved in making the products. This is because the final price must cover these costs.
- Evaluate the Internal and External Environment
The internal and external factors like competitors’ pricing, the company’s objectives, and legal constraints also need to be considered when setting a price.
- Decide Pricing Objectives & systems
In this step, you assess, discuss and agree on the pricing objectives that your company has.
- Set Price
All the previous information must be collated and analyzed, and then you can decide the best price for your product and services. You also must consider possible sales promotions and discounts when setting a price.
By following these steps, you can prioritize the price in the marketing mix and set it based on the other elements.
How Do You Get Your Pricing Maturity to The Next Stage?
Pricing maturity is used to describe a company’s pricing capabilities. It presents itself in a pricing maturity model, used to assess and measure how good a company is in setting prices. Before starting your pricing journey and developing your marketing mix, it’s important to know where you stand with pricing maturity and take steps to evolve.
Thus, any brand should assess its pricing maturity to identify its strengths and weaknesses. That way, they can create competitive pricing that would set them ahead of other businesses in the industry.
There are different ways to analyze pricing maturity and determine where your brand stands. But regardless, a mature pricing strategy supports itself in a particular way. For one, there should be a strategy that provides a general direction of pricing and protects the price from external changes.
There should also be pricing execution, covering the price level, realization, and differentiation. They all serve different purposes but should complement each other to provide a stable price. A pricing structure should be founded on enablers like the organization, governance, market tools, and the people.
When all of these elements blend properly, you can ensure that you have achieved pricing maturity. Here is a four-step pricing maturity model that brands can use to check how mature they are in setting prices and what they should attain to be:
- Stage 1: Pricing Cost Based
An immature pricing strategy will focus on how much the company needs to make, which is usually done by new brands. In this case, the brand begins their pricing journey by looking at what they need and how much income will be required to achieve this.
- Stage 2: Pricing Competitor Based
In this stage, the brand looks at what its product is worth and sets its price based on this. Many brands are on this level of maturity. They look at how much their product is worth based on what resources were used in making it and set it as the price.
- Stage 3: Pricing Based on Customer’s Perspective
Many brands think that the correct way to price, is to place a value based on what the customers say in this customer-centric age. So when a customer places a high value on a product, it is sold at a high price.
- Stage 4: Pricing Based on Response & Pricing Power
Based on this model, you achieve pricing maturity when you, as a brand, influence your customers’ & competitor’s perception of value and set your price. So the brand makes the customers think that the product’s value is so and sets the price based on that.
5 Steps to Develop Your Competitive Intelligence
Another important thing to know when looking at marketing mix and pricing is competitive intelligence. Competitive intelligence is a brand’s ability to collate, evaluate, and utilize information collected on competitors and other factors. The data collected should be used to the brand’s competitive advantage.
It’s important to know what your competitors are doing in terms of their marketing mix and pricing strategies, and the only way to know that is with top-notch competitive intelligence. Competitive intelligence is not only about analyzing the market, but it’s about looking at the aspects that give your company a competitive edge and leveraging it in the industry.
Here are five steps to follow to develop competitive intelligence:
- Step 1: Identify Your Competitors
The first step to developing competitive intelligence is to know who your competitors are. It’s more advisable to collate your competitors extensively, starting with your five most important and direct competitors.
There are other competitors, like indirect competitors in the same industry but don’t compete with your brand for competitors. You can also look at aspirational competitors like upcoming brands in your industry and perceived competitors to be safe.
- Step 2: Track Your Competitors’ focus
Now that you have established who your competitors are, you can track their focus and footprint. It’s easier to choose specific data areas like their interests, businesses, strategies, products and more.
- Step 3: Collect Your Intelligence
This is a needful but time-consuming step, as you can’t develop competitive intelligence without collating your intel in a digestible form. You can analyze the data collected to get important insights into your competitors.
- Step 4: Generate a Competitive Analysis
With the intel you have collected, you can create a competitive analysis that can be communicated to others in your organization. One good way to do this is by setting a baseline analysis and creating competitor profiles. It’s also important to keep updating this information.
- Step 5: Communicate to Key Stakeholders
Finally, you need to communicate the competitive intelligence to key stakeholders and employees in your company. This way, every part of the company can use this information to create strategies that give the brand an edge in the industry.
Opportunities for Dynamic Pricing in Today’s Markets
Dynamic pricing is one of the most important concepts in eCommerce, so it’s not surprising that it’s a must-know for price in the marketing mix. With dynamic pricing, the price of a product is based on the changes in current market demand. It involves selling the same product at different prices and times, based on the current demand.
It can also be called real-time, time-based, rapid response, surge pricing. Constant changes and technological improvements characterize today’s market, so brands have different chances to apply dynamic pricing and profit from it. With dynamic pricing, businesses can make price decreases when needed to increase sales and meet revenue goals. They can also raise prices based on demand and competitors, and profit.
One of the reasons why there is a lot of opportunity for dynamic pricing is demand fluctuations caused by changes in customer perception. Customers might want something more tomorrow than they did today, and businesses must learn to leverage this to make more sales and profit. It also makes it easy to react quickly to changes in demand and customer purchase habits.
Most brands use self-improving algorithms ( machine learning & AI) and software to determine dynamic pricing. But the product’s price at any set time depends on different factors. These include:
This is an important variable that you can use in setting dynamic pricing. As demand increases, the price of goods also increases. Also, when demand drops, the price has to reduce to attract customers. Demand can be analyzed by the seasonality of products and, for online businesses, the number of views a product has on the website.
Supply and future cost predictions are also important factors in dynamic pricing. Factors like the current cost of production and the stock levels are considered too.
- Customer Data
Customers drive sales in any business, so dynamic pricing is highly dependent on their behavior. Dynamic pricing algorithms focus on demographic data of customers, device-specific data for online companies, customer spending habits, and their willingness to spend more or search for lower prices.
- Competitor’s Prices
If a competitor has a lower price but the same quality, there’s a good chance that most customers will go to them rather than you. So, dynamic pricing can also depend on the prices your competitors place on their goods.
- Prices of Substitute Products
Finally, dynamic pricing is also dependent on the prices of substitute products, whether the company or their competitors make them.
Marketing & Value Proposition
The final must-know element in marketing mix and pricing is the value proposition, an integral part of any company’s overall marketing strategy. A value proposition explains the value that a brand or company promises to provide and how a customer can benefit from this. It involves what makes the product alluring, why customers should buy it, and how the product stands out from similar offerings in its market.
A value proposition is not a slogan or catchphrase that a company might have because they don’t always include the benefits of purchasing its products. The proposition is in a concise statement addressed to the target market. It must immediately communicate the product value to potential customers without being too long or requiring more explanation.
Any business that wants to improve its marketing strategies, drive sales and build a customer base must have a compelling value proposition. At the same time, the value proposition should show the customer why that product is worth whatever price is attached to it, which is important in pricing strategies.
You can follow these tips to create a compelling value proposition for your brand.
- Know Your Target Customers
Before you think of your value proposition, you must know your customers. This involves analyzing your target customers to know the benefits they are looking for in any product and how to meet these needs.
- Consider Your Competitors
While you analyze your customers, it’s a good idea to look at your competitors. Assess the competitive landscape of the market, the weaknesses, and the strengths of your direct competitors, and pinpoint the ways your brand can stand out.
- Weigh Cost and Benefits
When creating a value proposition, it’s also important to look within your company. Focus on the benefits offered by your company, the products you are selling, and the costs involved. The price of our product and the value customers place on your products also matter.
- Clarity is Key
Your value proposition should be clear and precise for it to be effective. Customers should look at it and immediately get the message you want to pass across in about three sentences.
- Leverage Design
Now, your value proposition should be on all your marketing materials and designed in an appealing way that attracts customers to your brand.
Conclusion and Summary
Pricing in the marketing mix is more than just assigning an amount of money to a product and sending it to the market. There are different elements involved as explored in this guide:
- How pricing and marketing mix has changed in today’s market.
- Learn how to prioritize pricing.
- Create mature pricing structures.
- Develop competitive intelligence.
- Pinpoint opportunities for dynamic pricing and exploit them.
- Use a strong value proposition to support your pricing decisions.
A successful business must identify and focus on these factors before getting pricing right in the marketing mix.
6 Must Know About Marketing Mix & Pricing
This Article is part of our Product Life Cycle Series
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