The Dynamics of Pricing

Pricing is a major marketing tool and the only one that produces revenues. Today's fast pace environment plays an enormous role in pricing, however price is not the only factor in buyer choice behavior. Price is the amount of money charged for products and services or the sum of all the values that consumers exchange for the benefits of having or using a product or service. With the appearance of new technologies, pricing is changing and we are experiencing a period of dynamic pricing, where charging different prices to different individuals with different needs and in different situations is common.

Pricing is a very flexible tool. It can be changed rapidly and at the same time it can cause many problems to marketing executives such as when to introduce changes on prices to obtain a sale rather than convincing customers about the quality of the product/service to justify a price or when setting prices that are cost oriented rather that customer-value oriented.

These pricing decisions faced by company's executives are affected by internal company factors and by external environmental factors. External factosr usually set the upper limit price. Before setting prices, the company needs to understand the relationship between price and demand for its products.

In the US, the MP3 market can be classified as a monopolistic competition where many buyers and sellers trade over a range of prices because sellers can differentiate their offers to buyers. A clear example is Apple's iPods, which offers a wide range of options to consumers in terms of prices and features. With the introduction of the scrollwheel, Apple was able to differentiate his MP3s from the rest of competitors. For consumers, the introduction of the scrollwheel meant a completely new dimension to MP3s and how consumers could access their music in these small players. At the time when MP3s were being introduced to the public, this development along with a clean design gave Apple a big push on demand for their iPod MP3 players. Soon enough, Apple was able to capture a great share of the market and to set high prices based on quality, performance and design of his MP3s. Consumers perceived these high prices as "right" for the product's value and consequently the demand for this product increased.

After increasing the market demand for MP3, competition started to develop new models of MP3s to access the market and gain a bigger share of it. To combat this move, Apple expanded its line of MP3s to fight this competition and currently offers product from $99 up to $499. With this strategy, competitors have less price leverage to compete with the iPods. Competitors either would have to come up with an unlikely cheap MP3 player or very expensive MP3 that will be very though to sell.

Apple also keeps a close eye on internal factors for pricing. They offer products with a wide range of features (MP3 plus photo and video capabilities) and a top of the line costumer service. They created the Apple Stores where consumers can find all the products Apple offers for iPods, as well as free lectures on maintenance and applications for their MP3s. These tools also enhanced the price of their products and gave them an advantage over