Definition of Price: Function, Type, Purpose, and Examples

Definition of Price Function, Type, Purpose, and Examples  – Price is the value or money that customers give in exchange for certain offerings that serve to satisfy their needs and wants. In simple terms, price is a measure of the value that customers exchange for buying an offer

Price functions as an economic mechanism by means of offerings that can be distributed among customers in the market. It also acts as an indicator of the extent to which an offer is requested and the extent to which it is provided or available.

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The price of a product is the total value of the offer including the value of all raw materials and services used to make an offer. Service pricing takes into account all the elements involved in making the service what it is.

A. Understanding Prices Based on Experts

Definition of Price Function, Type, Purpose, and Examples

So that you can find out more clearly about prices, here are some price definitions based on experts.

1. According to Kotler and Armstrong

Kotler and Armstrong, stated that price is the amount of money charged to a product (goods or services) or the amount of value that must be paid by consumers in order to obtain the benefits of the product.

2. According to Philip Kotler

Kotler, states that price is the amount of money charged for a product or service. This means that price is the amount of value that consumers must pay to own or benefit from a product or service.

3. According to Joko Untoro

Joko Untoro, stated that price is the ability of an item or service expressed in terms of money.

4. According to Samsul Ramli

Samsul Ramli, stated that price is the relative value of a product. This value is not only a definite indicator that shows the amount of resources needed to produce a product.

5. According to Imamul Arifin

Imamul Arifin, stated that the price is a compensation that must be paid by consumers in order to obtain goods and services.

B. Price Concept

After knowing the meaning of price, in this section we will discuss the concept of price itself. In the Book of Management and Marketing of Services by Buchari Alma, published in 2005, it is stated that in theory there is value and utility which is the concept of pricing. The following are some price concepts that you need to know, including:

1. Utilities

Utility is an attribute that has been attached to an item. By enabling goods to meet the needs and desires of consumers.

2. Value or Value

The value of a product in exchange for another product. This value is seen in a situation of barter or the exchange of goods for goods. Currently, economic activity is no longer carried out by barter, but uses money as a measure called price.

C. Price Function

In this section, we will present a review of some of the functions of the price that you need to know, including the following:

1. Price Distribution Function

Price has the ability to distribute scarce resources. The scarcity of resources causes the price of resources to be high, so that only customers who buy show willingness and ability.

For example, diamonds are a luxury that only those who are willing and have sufficient financial resources can afford it.

2. Price Signal Function

Often, the bid price varies due to the volume of market demand and supply. When demand is high, but supply is low, the market will clearly see the price increase. For example, gold is a scarce resource that experiences constant price increases over the years as demand increases.

Likewise, if the market has an excess of a particular commodity due to lower demand and higher supply then its price tends to fall. This allows the elimination of the commodity surplus in the market.

3. Price Intensive Function

Generally, when commodity prices rise, because demand increases. It allows suppliers to see changing customer demand trends in the market. Therefore, they will prefer to make a certain offer because it is most likely to be profitable.

4. Price Transmission Function

Price itself is known as one of the information that must be conveyed to all parties involved both in the market and other places which is carried out in turns. This will allow producers and customers to make decisions according to existing and applicable regulations. For example, a more expensive quality offer will be different from an offer that uses cheaper raw materials.

Therefore, in general, customers will get this information from drastic differences in the price of the same offer. The bid price will be able to assist in the marketing process to determine the type of demand seen from the supply in the market.

This will affect the decision of the supplier or producer to decide whether the production or supply of goods is able to help them in getting a more significant profit.

Let’s look at how market prices are determined. Is the market price in accordance with the provisions that have passed. Housewives will experience difficulties if prices in the market soar. Therefore, price determination is determined based on the law of supply and demand. Which means, if the price rises or falls until the quantity demanded equals the quantity supplied. This is known as the equilibrium price.

Provisions where the demand for an offer is greater than the supply, then the price will increase which causes only buyers who have access to offers who are able to have the willingness and ability to buy the product. This will be met with a price balance.

The equilibrium point is often called the supply that exceeds the demand which causes the price of the good to fall.

D. Types of Prices

After understanding and understanding what price or cost is, let’s continue with the following types of prices:

1. Subjective prices are prices set by someone’s opinion or estimate.

2. The objective price (market price) is the price that has been agreed between buyers and sellers who sometimes make offers.

3. Cost of goods is the real value for the product.

4. The selling price is the price based on the addition of the amount of profit obtained from the seller or usually the selling price follows the market price in general.

E. Purpose of Pricing

Living in big cities requires a lot of spending to meet daily needs. Most people try to fulfill their individual needs. Opening a business requires the right price. Price is very important in buying and selling transactions from producers to consumers. This will facilitate the determination of prices and will be seen for the position of the product’s feasibility from its economic value if examined carefully and carefully.

Well, here are some of the goals of pricing that need to be considered, including:

Price stability, where the company will have control over prices. In addition, price control efforts will be directed properly and properly to prevent a price war from occurring. This event will allow the demand to decline drastically, and so on.

To achieve income or investment, the profit on this investment has been determined. So for the size of the profit from an investment will be determined from the percentage after which the price of the goods that have been produced will be determined

A businessman must maintain and increase his business to get income targets and develop his business so that it develops well. Try to follow the recommendations that already exist if you have a business. In this case, the Government has now provided a policy for setting prices to be in accordance with calculations to avoid losses. In addition, pricing is able to increase profits, because it will refer to each business whether it is able to survive because every business really thinks about profits that are higher than expenses.

Basically, price determination is not arbitrary in determining, but must be in accordance with existing recommendations or methods. So let’s see what my method of pricing is. The following are four methods of pricing, including:

1. Fee based

In general, this cost-based aspect is an important aspect because it can influence both supply and costs. Where the price will be determined based on production costs and product marketing costs. Sometimes it is able to cover direct costs, profits, losses and overheads.

2. Demand based

Demand-based is a method that emphasizes various types of factors that affect your taste, then this will affect the ability and willingness of customers to transact.

3. Profit based

Profit-based is a balance of costs between revenues. So the profit-based approach has three approaches, namely target profit pricing (pricing based on profit targets obtained), target return on sales pricing (pricing based on sales) and target return on investment pricing.

4. Competition-based

On the basis of this competition, pricing is determined by following the way competitors set prices. In this case, there are three methods of approach, namely: a sales system below the price or known as a discount, giving a much higher price but much better product quality and equalizing the price so that competitors are not too big.

F. The difference between price and cost

An ever-increasing economy with different price variants. In this day and age, the price of cooking oil rises non-stop and worries many residents. However, many people equate the words price and cost with the same meaning. Basically price and cost are different concepts in pronunciation but different in finance. For example: “Rani has to pay a high price for a sample test at the University of Indonesia laboratory which she recently paid for”. It is aimed at the pronunciation of costs, not prices.

As for the offer price, where the monetary amount paid by the customer to get a certain offer, which means the cost of the offer considers the seller’s expenses in making an offer. This means that the price is related to the buyer, while the cost concerns the producer or the buyer in making a bargaining transaction.

Nowadays a lot of land is opened for business to build companies. Today’s companies have different goals but both are to maximize profits to reduce costs which will then impact the amount of the price. This means that in that case they will get a much greater profit in general.

In terms of the bid price, where the bid price is determined based on the lower point, the costs themselves will be higher than the general price. Therefore many companies will suffer losses due to sales that are not able to return to the amount spent in making the offer.

If the company experiences a situation where the price and cost of offering are the same, then the company is experiencing a break-even point which means that it does not make a profit or loss.

So before you do business or business, you should make sure that the price you offer must be in accordance with the existing provisions. Which means in addition to selling or as a producer you have to make a profit from the business or business that you do.

In general, many businesses or companies always do pricing or record and calculate the costs incurred and so on, which is known as the accounting system. The accounting system will help you in managing your income or money earned in business.

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