The role of prices in the economy
The role of prices in the economy. In the business world, prices have many names, for example, in the trading world, a product is called price, in the banking world, it is called interest, or in the accounting services business, consultants are called fees, taxi and telephone transportation costs are called tariffs, while in the insurance world, they are called premiums.
1. Prices according to experts
Apart from the various names, the opinion of some experts regarding price, according to Dolan and Simon,: price is the amount of money or services or goods exchanged by buyers for various products or services provided by sellers.
According to Monroe (1990) states that price is an economic sacrifice made by customers to obtain products or services. In addition, price is an important factor for consumers in making decisions to make transactions or not.
From the explanation it can be concluded that price is an amount of money determined by the company based on the calculation of costs incurred such as production costs or the cost of obtaining a product, marketing costs, operational costs.
Profits that the company wants and something else that the company holds to satisfy consumer desires. In other words, prices are set because there are wants, needs and purchasing power of consumers.
2. Price Role
The role of prices in the economy. In conditions and situations full of competition, the role of price tends to increase, according to Prof. Michael Laric in the book Marketing Strategy and Management, Michael J Baker, Emeritus Professor of Marketing, Strathclyde University, England, the role of price in the marketing mix that the role of price tends to increase when conditions are the following conditions occur;
- the product is first introduced to the market;
- associated with company goals;
- competitor companies carry out price reductions;
- the existence of new products resulting from the development of new technologies that have substitution properties and are more efficient and effective.
Besides that, according to Prof. Michael J Baker, price has an important role in the marketing mix because:
- Price elasticity has a greater influence on demand than the other marketing mix elastic elements;
- Changes in price greatly affect changes in the amount of sales;
- Implementing price changes is much easier than planning product or promotion strategy changes;
- Rival firms’ reactions to price changes are usually quicker and more sensitive;
- In carrying out price implementation does not require capital investment;
- The price of a product is strongly influenced by external factors (economic recession and inflation, increasing temperature of competition, market saturation or excess supply, the emergence of new competitors, and the development of consumerism).