Relevance / Importance of pricing to economy, organisation and customer.... | Kairos Institute

Relevance / Importance of pricing to economy, organisation and customer....

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Price is the important element of economy.  It directly affects demand and saving. It also controls means of production.  To make it clearer, a short description has been made as follow:

  • Determinant of demand and supply: As the price of products directly affect demand, price plays an important role in determining the quantity of demand. So price has been accepted as basic element. If the price is increased but the quality of the product is unchanged, and then demands of the products decreased, and if the price is decreased, demand for the products increased.
  • Effect to the factors of production: Price of products is very important to economy and industry. It directly affects wages, rent, interest, and profit. Capital, labour land and venture are the factors/ means of ventures production.
  • Effect to the saving and investment: Determined/ fixed price for target market may affect inflation. This indicates that inflation causes increased in price of products. When the price of products or services increases, consumer’s saving decreases, due to which investment is discouraged.


Price of product or services is an important element/ factor of marketing mix.  Price management is very difficult task for profit making organization.  So, rational decision should be taken for price management.

  • Revenue and profit: Price plays an important role in determining income and profit of an organization. Total income can be made out/found out by multiplying per unit price by sold quantity. When sale quantity remains same, but price is decreased, income also decreased. If price is increased and sale quantity remains same, income is increased. Profit can be made out/found out also by subtracting total cost from total revenue.
  • Competition: Business organization should face various competitions appeared in market. It has to face price competition certainly. If market competition increased in the price already fixed, the organisation can attract increased number of customer by decreasing the price. Increases sales volume and decreases production cost.
  • Expansion of the production line: Price directly affect organisation to expand target markets and add product line. Price all so help in taking decision whether to add new product line or expand new product or not.


Determination of price should be based on genuine reasons. If price has been determined rationally, this helps generally customers.

  • Importance to the product selection: Most of the customers give priority to price and analyze it. They try to select products considering their.
  • Importance of the quality perception: Price plays an important role to meet customer’s necessity /want. It is all so equally helpful to assure them of the quality of the product.
  • Importance of customer’s benefits: Price of products affects customer’s benefit. The customer by low priced products/goods even when the income source has fallen down. In the situation when income has increased, demand for products does not decreased even if the price is high.


Prepared by

Meera Michael


Kairos Institute, Thodupuzha

   2019-11-12 11:04:26
   Kairos Institute

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