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The role of price in the marketing mix is to define the pricing strategy that will best attract those within the business’s target market. When discussing this issue, the price of the product, discounts, segmentation and financing options are included. Setting a price involves determining what the target market is prepared to pay, the costs to produce the product, and what the competitors charge.
Developing the price section of a company's marketing mix strategy includes conducting research within its target market. The business needs to determine what its customers are willing to pay, which can often be difficult if the product or service is unique or significantly different than what is currently being offered. If this is the case, businesses can use surveys and test marketing techniques to gain insight into what price points are optimal.
The cost of producing the product or service is also included in the price, and it determines the lower limit of which the price can be set. The selling price should always be higher than it costs to make the product in order to make a profit. The marginal profit can be calculated to determine how much in profit is made per item sold.
Components of price in the marketing mix not only include the actual price of the product but also discounts and the availability of financing for customers. For instance, a business may find it better to segment its market to offer different pricing options. This is often done when software companies create home and business versions of their products, for example, with the business version having a higher price point. If the company will offer discounted prices or opportunities for its customers to finance, the details should also be included in the marketing strategy.
Comparing pricing strategies with the competition can also be beneficial. A business should determine on which basis it wants to compete, such as by becoming a price leader, offering the highest quality, or becoming a luxury brand. After determining this, the company should then set its price appropriately in relation to its competitors. For instance, if the business wants to be positioned as having the highest quality, it would not want to sell its product at a cheaper price than others in the market.