Marketing Mix: Why Is Pricing the Most Important Pillar

Nowadays, factors like price matching have become incredibly important. This is because the price is now the most important ‘P’ in the marketing mix. We discuss how retailers can use pricing data to improve their marketing campaigns. 

In this article, we will discuss how pricing affects marketing, how to integrate pricing into marketing and the interaction between pricing and marketing. We will explain clearly why pricing is the most important pillar of the marketing mix. First, we’ll go over what the marketing mix is and how it affects the relevance of online shops.

What exactly is the marketing mix?

The marketing mix consists of seven ‘P’s’. These P’s stand for product, place, people, process, physical evidence, promotion and price. All of these components can be a differentiating factor in attracting customers.

Attracting new customers is incredibly important to the success of selling products. Therefore, all P’s will need to be looked at. Nevertheless, the huge changes in retail are affecting the relevance of the pillars.

These huge changes over the past decades have left us with a number of questions. Are all the P’s still applicable? And are they all still equally important?

Source

It’s wise to look at how the different P’s work in the context of today. This is exactly what we will do below.

Product

The product is becoming less and less of a distinguishing factor. This is because retailers are expanding their assortment. Also, more and more retailers are offering the same products.

Place

Place is also becoming less and less of a differentiating factor. This is because people are increasingly making their purchases online.

People

With people we mean the staff of the company. This is also due to the fact that people increasingly make their purchases online. Hereby little or no interaction with people is needed.

Process

The process is also becoming less of a differentiating factor, as more and more retailers deliver 24 hours a day.

Physical evidence

The physical evidence is also a less important factor. This is because a web shop is becoming more important than a physical store. The quality of a web shop is easier to maintain than that of a physical store.

Promotion

Promotion can also be called online marketing. This ‘P’ has become more important because the number of marketing channels has increased enormously.

Price

And last but not least, the price. Prices are now transparent and easy to compare. Partly because of this, price has become perhaps the most important pillar.

What is the influence of online web shops on the relevance of pricing in the marketing mix?

The fact that the price has become the most important pillar of the marketing mix at the moment is because more people are making their purchases online. When we need something, everything can be found online on many different websites. The offer has become enormous.

Many more companies therefore have an increasingly varied product range. Because more and more companies are offering the same products, the competition between the prices is also increasing. It is the case that it’s becoming easier for consumers to compare prices.

Because price competition has become increasingly important, it’s wise to include this insight in the marketing. You need to have a good idea of how to deal with pricing. We are happy to explain the influence of pricing on marketing, how to integrate pricing into online marketing and the full interaction between pricing and marketing.

The influence of pricing on marketing

Today, the effectiveness of marketing campaigns isn’t determined by the campaigns themselves, but by price changes. Pricing affects marketing in two different ways: it affects the marketing budget and the marketing effectiveness.

Pricing determines the marketing budget

The cost-per-click is becoming more expensive. This is why higher budgets are needed to generate the necessary traffic. What determines the margin that is on a product is the pricing strategy. The margin determines how much marketing budget is still available for promoting the product. This is then the maximum cost-per-acquisition.

Price has a huge impact on marketing effectiveness

When your product is priced lower than your competitors’ products, customers are more likely to click on one of your ads or buy one of your products. A competitive pricing strategy results in a higher click-through rate and a higher conversion rate.

A higher price leaves more room for a higher marketing budget, while a lower price increases marketing effectiveness. You will have to find the perfect balance. 

This balance is different for every product, because click-through-rate and conversion react differently to price changes. This is due to the price elasticity of products. This predicts how sensitive the demand for a product is to price changes.

When retailers or one of the competitors changes the selling price of a product, it affects the click-through-rate and conversion. The marketing budget will have to be adjusted accordingly. For this purpose, pricing and online marketing will have to be properly managed.

Integrate pricing in the online marketing

Pricing can be integrated into online marketing in three different ways. Below we have listed these three ways.

Include pricing data in marketing

Pricing data is often not included in online marketing. When this isn’t done, it’s almost impossible to properly assess the performance of your campaign. It’s therefore important that pricing data is included in online marketing.

Use pricing data as a fixed input for marketing

To integrate pricing into online marketing, you can also use pricing data as a fixed input for the marketing department. It’s wise to proactively adjust the marketing budgets when the pricing ratio changes. By doing so, you ensure that the marketing budgets match the expected performance at the new price level.

You can predict how marketing KPIs will react to a higher or lower price. You can then adjust marketing budgets accordingly.

Use pricing data as dynamic input for marketing

You can only really achieve something when dynamic input is fully integrated with marketing. Not only the price, but also the selling price is now a fixed input for marketing. With dynamic input, the perfect balance between price, marketing budget and marketing effectiveness can be found.

In these ways, you can successfully integrate pricing into marketing. Dynamic pricing as a flexible input for marketing allows you to find the perfect balance again and again.

The full interaction between pricing and marketing

How well a product will sell can be predicted with marketing effectiveness and pricing. They do not yet predict how much traffic will be generated with the marketing budget. You do need to know this to predict the total revenue and profit that the online marketing campaigns will generate.

Below are the three KPIs for traffic.

1. Views: By views, we mean the times when ads are displayed.

2. Clicks: By clicks we mean the moments when a customer clicks on an ad and visits the website.

3. Cost-per-click: The cost-per-click is the amount you are willing to pay for one click.

In the following four steps, we explain the interaction between all KPIs.

Step 1. Pricing determines the maximum marketing budget per product. This is also known as the maximum CPA. Pricing also predicts the conversion rate of a product at that price point.

Step 2. The conversion rate and the maximum CPA together determine approximately the absolute maximum cost-per-click at which a profit is still achieved.

An example: With a CPA of €10.00 and a conversion rate of 5%, you are willing to pay about €0.50 per click. So this is a maximum cost-per-click of €0.50.

Step 3. The impressions and the click-through-rate determine how many clicks, or how much traffic, is generated.

Step 4. The number of clicks, the conversion rate and the pricing together determine how much revenue and profit can be achieved.

It’s an incredible challenge to find the optimal balance between all KPIs for each product. This is because the optimal balance between pricing and marketing is different for each product. It’s almost impossible to find this balance for the entire product range. You will have to hand over this task to intelligent automation software.

Conclusion

So pricing has the most influence on marketing. Yet pricing data is still not widely used. When it is, marketers will be able to understand the context of their campaigns better. Thus, marketing budgets can be adjusted proactively. Ultimately, the return on marketing will be significantly improved.

You get the best results when dynamic pricing and marketing are managed properly. This way, the perfect balance between price, marketing budget and marketing effectiveness can be found.pricing

We hope that in this article we have clearly explained why pricing is the most important pillar in the marketing mix. We hope you now understand the complete interaction between pricing and marketing. Focusing on the relevance of pricing will only make your online marketing strategy stronger.

References

Marketing Scriptie. (unknown) Marketingmix maken met de 4 P’s. https://marketingscriptie.nl/