The product is either a tangible good or an intangible service that is seem to meet a specific customer need or demand. All products follow a logical product life cycleand it is vital for marketers to understand and plan for the various stages and their unique challenges. It is key to understand those problems that the product is attempting to solve. The benefits offered by the product and all its features need to be understood and the unique selling proposition of the product need to be studied. In addition, the potential buyers of the product need to be identified and understood.


Price

Price covers the actual amount the end user is expected to pay for a product. How a product is priced will directly affect how it sells. This is linked to what the perceived value of the product is to the customer rather than an objective costing of the product on offer. If a product is priced higher or lower than its perceived value, then it will not sell. This is why it is imperative to understand how a customer sees what you are selling. If there is a positive customer value, than a product may be successfully priced higher than its objective monetary value. Conversely, if a product has little value in the eyes of the consumer, then it may need to be underpriced to sell. Price may also be affected by distribution plans, value chain costs and markups and how competitors price a rival product.



Promotion

The marketing communication strategies and techniques all fall under the promotion heading. These may include advertising, sales promotions, special offers and public relations. Whatever the channel used, it is necessary for it to be suitable for the product, the price and the end user it is being marketed to. It is important to differentiate between marketing and promotion. Promotion is just the communication aspect of the entire marketing function.


Place

Place or placement has to do with how the product will be provided to the customer. Distribution is a key element of placement. The placement strategy will help assess what channel is the most suited to a product. How a product is accessed by the end user also needs to compliment the rest of the product strategy.

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Cost per unit includes actual direct materials, actual direct labor, actual variable manufacturing overheads and allocated fixed manufacturing overheads.

Cost-plus pricing is appropriate where the units are not uniform and each order is different. In such cases price equals the cost estimate plus a profit (which may be a percentage of cost or sales price or a fixed amount). Estimating correct cost per unit is important because incorrect estimation of cost affects the selling price and ultimately the competitiveness of the firm.

Advantages and disadvantages

Cost-plus pricing is easy to apply and in some situations it is the only method to determine a price when market price is not available, for example in case of government contracts.

However, despite its simplicity, it is not a preferred pricing method because it does not encourage efficiency. As compared to target costing, where price is fixed and companies have to keep costs low in order to squeeze in a profit, there is no such pressure in cost-plus pricing. Since all costs are reimbursed together with profit, companies may not be motivated enough to keep costs at their optimum.

When a product is priced in accordance with what the competition is charging, it’s known as competitive pricing. It is one of the four major pricing strategies adopted by most companies. The other three include, cost-plus strategy, where a prefixed profit margin is added over the total cost of the product, demand pricing, under which the price is set by establishing the optimal relationship between volume and price, and markup pricing, where a percentage is added (as profit) over the wholesale price of the product.

When it comes to competition based pricing strategy, the purchasing behaviour of customers is an important criteria. Some of the factors that companies take into account are costs, competition, and price sensitivity. In order to ensure profitable sustenance of the business, managers have to set the price such that it covers the production cost, company overheads costs, and also offers suitable profits.

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