According to Kotler and Armstrong (2008:63) price is the amount that customers have to pay to get the product. Price is the amount of money needed to get some combination of goods and services.
Price has two main roles in the decision-making process of buyers, namely the role of allocation and the role of information. The informational role of price is a function of price in helping buyers to decide how to obtain the highest expected benefit or utility based on their purchasing power.
Thus, the price can help buyers to decide how to allocate their buying power to various types of goods and services. Buyers compare prices from various available alternatives, then decide on the desired allocation of funds.
The informational role of price is a function of price in "educating" consumers about the product, for example quality. This is especially useful in situations where buyers have difficulty objectively assessing the product's factors or benefits.
The common perception is that high prices reflect high quality. In addition to product design, price is a controllable variable that determines whether a product is accepted or not by consumers.
Prices are solely up to the company's policy, but of course take a number of things into account. The cheap or high price of a product is very relative in nature, to say it needs to be compared with the price of similar products produced or sold by other companies (Anoraga, 2000: 221).
According to Etzel, Gitosudarmo, Kotler (in Sunyoto, 2014: 130) there are several notions of price, as follows:
Etzel said price is the value stated in a currency or other monetary medium as a medium of exchange. While in economics, the notion of price has a relationship with the notion of value and use.
Gitosudarmo said the price was actually the value expressed in one currency or medium of exchange for a particular product.
In reality, the size of the value or price is not only determined by physical factors that are taken into account but psychological factors and other factors also affect the price.
So the notion of price is the amount of money incurred to get a certain number of products or a combination of goods and services. The actual price is not only intended for a product that is being traded in the market but also applies to other products.
Kotler said price is the amount of money charged for a particular product. Companies set prices in a variety of ways. Even in these companies, top management establishes general pricing objectives and policies and often approves prices proposed by lower management.
According to Swastha and Irawan (2008:241) price is the amount of money (plus some products if possible) needed to get a number of combinations of products and services.
From this definition, it can be stated that the price paid by the buyer includes the services provided by the seller. Even the seller also wants some profit from the price. According to Stanton (1984:307) the price is the value stated in rupiah and cents or other monetary medium as a medium of exchange.
According to Kotler in the journal (Dahmiri, 2009:13) the price is the amount of money that must be paid by the buyer to get a certain product.
According to Alma (2013:169) in theory economics, understanding, price, value, and benefits are interrelated concepts. What is meant by benefits is an attribute attached to an item, which allows the item to meet the needs, desires, and satisfy consumers.
Value is the value of a product in exchange for other products. This value can be seen in a barter situation, namely the exchange of goods for goods. Currently, our economy is not bartering anymore, but is already using money as a measure called price.
In this case, again the marketing department through its sales force has a very important role in finding and gathering information that is useful for setting prices because salespeople are in direct contact with consumers.
Pricing Goals
According to Payne (in Sunyoto, 2014:132) there are several objectives of pricing, including:
- Surviving, surviving is an attempt not to take actions that increase profits when the company is experiencing unfavorable market conditions for the sake of the company's survival.
- Maximizing profit, pricing aims to maximize within a certain period
- Maximizing sales, pricing aims to build market share by selling at an unfavorable initial price.
- Prestige, the purpose of pricing here is to position the company's services as an exclusive product.
- Development of investment, pricing objectives are based on achieving the desired return on investment.
According to Reworldt (in Sunyato, 2014:133), in addition to knowing the market environment in which prices will be set, marketing managers must clearly formulate the goals of the company. As a result of the Brookings Institutional study and an accompanying journal article by one of the principal investigators, it is fairly clear that the most important pricing objectives in large corporations are:
- Pricing to achieve a target return on investment (return on investment)
- Price and margin stabilization
- Pricing to achieve a target market share (market share)
- Pricing to overcome or prevent competition
- Pricing to maximize price
According to Swastha and Irawan (2008:241) the objectives of pricing are as follows:
- Increase sales
- Maintaining and improving the stock market
- Price stabilization
- Reaching the return on investment target
- Achieving maximum profit, and so on
Factors To Consider In Pricing
According to Kotler and Armstrong in (Tjiptono, 1997:154) in general there are two factors that need to be considered in setting prices, namely:
1. Company internal factors
- The company's marketing objectives
- The main determining factor in pricing is the company's marketing objectives. These goals can be profit maximization, maintaining company viability, gaining large market share, creating leadership in terms of quality, overcoming competition, implementing social responsibility, and others.
- Marketing mix strategy
- Price is only one component of the marketing mix. Therefore, prices need to be coordinated and mutually supportive with other marketing mixes, namely product, distribution, and promotion
- Cost
- Cost is a factor that determines the minimum price that must be set so that the company does not suffer losses. Therefore, every company must pay great attention to aspects of cost structure (fixed and variable), as well as other types of costs, such as out-of-pocket costs, incremental costs, opportunity costs, controllable costs, and replacement costs.
- Organization
- Management needs to decide who in the organization should set the price. Each company deals with pricing issues in its own way.
2. External environmental factors
- The nature of the market and demand - Everyone needs to understand the nature of the market and the demand it faces, whether it is a perfectly competitive market, monopolistic competition, oligopoly, or monopoly.
- Competition - There are five main forces that influence the competition in an industry, namely competition in the industry concerned, substitute products, suppliers, customers, and the threat of new entrants.
- other environmental and external elements - In addition to the above factors, companies must also consider economic conditions (inflation, boom or recession, interest rates), government policies and regulations, and social aspects (concern for the environment).
There are six steps of the procedure in considering the pricing factors, namely:
- Selecting a pricing objective - The company first decides where it wants to position its market offering. The clearer the company's goals, the easier it is to set prices. The five main objectives are: survivability, maximum current profit, maximum market share, maximum market milking, and product quality leadership.
- Determining demand - Each price will lead to a different level of demand and therefore will have various impacts on the company's marketing objectives. In determining demand, it is necessary to pay attention to price sensitivity, estimate the demand curve, and price elasticity of demand.
- Estimating costs - Demand sets an upper bound on the price a firm can charge for its product. Costs set a lower limit. Companies want to charge a price that can cover the costs of producing, distributing, and selling the product including a reasonable rate of return for the effort and risk. However, when companies charge a product price that can cover their full costs, profitability is not always the end result.
- Analyzing competitors' costs, prices, and offerings - Within the range of possible prices determined by market demand and the firm's costs, the firm must calculate the costs, prices, and possible price reactions of competitors. The company must first consider the price of the nearest competitor, if the company's offering contains features that are not offered by the closest competitor, the company must evaluate their value to customers and add that value to the competitive price. If a competitor's offering contains some features that the company does not offer, the company must subtract their value from the company's price. Now the company can decide whether it can use more, the same, or less than competitors.
- Choosing a pricing method - The company has a pricing method that takes one or more of these three considerations into account. There are six methods of markup pricing, target rate of return pricing, presumed value pricing, value pricing, going-rate pricing, and auction-type pricing.
- Selecting the final price - The pricing method narrows the range from which the firm should have its final price. In selecting that price, the company must consider additional factors, including the impact of other marketing activities, the company's pricing policies, profit and risk sharing pricing, and the impact of price on other parties.
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