Describe the economic basis of pricing and the means by which sellers can control prices and buyers' perceptions of prices.
A product is a set of attributes and benefits that has been designed to satisfy its market while earning a profit for its seller.
Each product has at price at which it balances consumers desires and expectations with a firm's need to make a profit.
The price of a product is the amount of money a seller is willing to accept in exchange for the product at a given time and under given circumstances.
Price thus serves the function of allocator. It allocates goods and services among those who are willing and able to buy them. It allocates financial resources among producers according to how well they satisfy customers' needs.
Price also helps customers to allocate their own financial resources among products.
Price competition occurs when a seller emphasizes a product's low price and sets a price that equals or beats competitors' prices. To use this approach most effectively, a seller must have the flexibility to change prices often.
Price competition allows a marketer to set prices based on demand. The Internet has made it more difficult than ever for sellers to compete on price.
Non-price competition is based on factors other than price. It is used most effectively when a seller can make its product stand out from the competition by differentiating product quality, customer service, promotion, packaging, or other features.
Buyers must be able to perceive these distinguishing characteristics and consider them desirable.
Buyers' perceptions of prices are affected by the importance of the product to them, the range of prices they consider acceptable, their perceptions of competing products, and their association of quality with price.
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