Pricing Strategies: Mechanisms, Types, and Conditioning Factors

Definition and Economic Role of Price

Price is the amount of money given in exchange for a certain amount of goods or service. Economically, the Price Mechanism is the method of market regulation, governed by the law of supply and demand.

Types of Prices (Appellations)

• Fees: Prices paid for the services of a professional (e.g., medical fees).
• Rates: Prices to pay for something, work, or public service (e.g., electricity tariffs).
• Wages: Basic pay for a period of time (weekly or annual) for administrative workers.
• Salary: Workers' basic pay plus bonuses and extras (weekly or monthly).
• Interest Rate: The price of money (price increases).
• Wholesale Prices: Prices that apply to wholesalers who purchase large quantities of a product or service.
• Authorized Prices: Prices that require authorization from the Public Administration before being applied.
• Gross Price: The price before any discount or price increase has been applied. Price increases must be reported to the Board of Higher Prices (which cannot prohibit the increase). Example: Freight transport.
• Cost Price: Includes all costs incurred for the product or service to be available in the market.
• Net Price: The market price after discounts have been implemented.
• Package Price: A set price for a product bundle.
• Political Price: Fixed by the Government for products or services considered basic or influential in the market (e.g., public transport, gas).
• Recommended Prices: Price range provided by the manufacturer to intermediaries.
• Balance Prices: Prices lower than normal (used for destocking).

Characteristics of Price

1. It is a decision of the company, except for those set by the Public Government.
2. It represents the money the company receives if it sells the product or service.
3. The price fixed by the company serves as a benchmark for its competitors.
4. The price influences whether a consumer decides to buy the product or not.
5. It is the marketing-mix variable that the company can manage most easily.
6. It has an effect on the image of the product or service.
7. It helps to differentiate similar products.
8. It can strongly influence product demand.

Factors Conditioning Price Fixing

1. The Market Structure

   The market structure must be observed:

   • If it is a competitive free market: The company must be very careful when setting the price due to fear that the product or service will not be accepted.
   • If the market is an oligopoly or monopoly: The company has more room to set prices.

2. Objectives of the Company

   Objectives such as Profit, Sales, Survival, or Market Share influence pricing. Some business objectives determine the price factor (e.g., trying to capture a market segment, offering a particular image, or gaining prestige).

3. Multiple Stakeholders

   The following parties must be taken into account:

   • The Competition
   • Employees of the company (as their jobs and pay depend on the proper functioning of the company)
   • Shareholders, holders, or owners
   • Intermediaries and suppliers
4. The existence or non-existence of substitutes and complementary products.
5. Sensitivity to communication actions (advertising or public relations).

6. The Product Experience Curve

   If the company can reduce product costs through experience in production, it could potentially lower the price.

7. The stage or phase of the product life cycle.