2. Ask 10 questions on the text.

1. Read text 7. Text 7. Setting the Right Price

Prices cannot be decided in a vacuum. Economic factors external to an organization influence the prices that are set. And this is the other side of the coin - how internal factors within an organization, e.g. the type of objectives set by firms, the kinds of strategies adopted to achieve those objectives and the different techniques used to determine costs and revenue, all influence the prices which are chosen.

Decisions concerning price cannot, in any case, be made in isolation from other elements of the marketing mix. There would be no point, for instance, in offering an upmarket perfume which retails through specialist stores and is advertised in 'quality' magazines at a very low price. The price clearly does not fit in with the other elements of the marketing mix and as a result the image projected to the consumer is confused.

What exactly is the 'right' price? Some people are prepared to pay almost any amount to get what they want - witness the Bugatti Royale that last changed hands at auction for around £10 million! When consumers can pay anything between £10 000 and upwards of £100 000 for what is essentially a metal con­tainer on wheels to take them from A to B, it becomes clear that price is the amount that consumers are prepared to exchange for what they perceive as the value of a product or service.

Whether products are perceived as good or poor value by consumers is influenced by the use to which they will be put. Consumers will pay more for products whose benefits they value highly. Much depends on the esteem in which the product or service is held. The significance of the purchase cost within individual budgets is also important.

Marketers distinguish between the basic price paid by consumers for the 'core' product and the premium price differential, which is the extra amount charged for the superior quality product with better features. This is illustrated by the difference in price between a Timex watch and a Rolex. But manufac­turers have also been known to charge a premium price for products which are almost identical to the basic product, the only difference being in the packaging and advertising!

In deciding on a price, marketers also need to be aware of the fact that con­sumers often tend to judge the quality of a product by the price itself. If a price is set which is too low there is always the danger that the psychology of price may influence consumers into thinking, 'If the product is really so good, why is it so cheap?'

This was the problem with a new brand of fruit juice which when launched sold in much smaller quantities than anticipated. Market research revealed that consumers found it hard to believe that the claims on the can could be true for such a cheap product. Based on these findings, the company decided to take the fruit juice off the market and re-introduce it at twice the price. Sales increased dramatically, thus proving that the original price had been wrong. However, setting the 'right' price is never easy.