This is the only part of the marketing mix that generates any money! In the commercial sector the price for the product or service has to be high enough for the supplier to make money but low enough for the customers to believe they are getting value for their money in exchange. In non-commercial organisations the relevance of price is less clear, although there is clearly an exchange going on and there is an expectation of the service or product that is provided.
Providing good value does not always mean being the cheapest. As a small business, never consider competing on price with larger organisations that have more resources. In fact, most customers are prepared to pay a little more for a product that is of a high enough quality, provided it is not prohibitively expensive.
In a typical transaction, a potential customer will assess the product or service and then measure this against the price asked. In rural areas they may also have to account for other costs like time, travel expenses and delivery costs. This leaves the business owner with the problem of trying to determine what price potential customers will regard as good value for money while still allowing the firm a sufficient margin to cover its costs and make a profit.
The main methods of pricing that are used by firms are: