Pricing decisions are basically decided on the basis of Cost of the product. So for example, you have a penetrative pricing strategy. Then you will have to keep the cost of the product very low. On the other hand, if the price has to be skimming price, then promotions need to go up so that more customers can be attracted and brand equity can be built.
Thus, the affect of marketing mix on pricing can be decided by considering each of the following elements.
1) STP – Marketing mix is the second step in a marketing strategy. This is because the marketing mix is decided as per the segment and the target you are going to have as well as the positioning you want to achieve. Thus, the very first thing which affects pricing is not marketing mix, it is segmentation, targeting and positioning. Depending on the segment (Rich or poor), target customers (value for money or premium customers) and finally positioning (top of the mind or cheap positioning) the pricing decision is made. If you want to go premium, then high prices are kept. Whereas for penetration, low prices are necessary. Thus, STP affects pricing decisions in a large manner.
2) Product – What are the product features and benefits being offered to the customer? If the product is innovative (like Apple) then the pricing will be very high. On the other hand if the product is a “me too” type of product (like Xolo, Micromax), then the price will be lesser. Whereas cheaper alternative brands (Chine imported smartphones) will have the lowest pricing of the sector. Thus, the type of product and its cost also affects the pricing decision for the product.
3) Promotions – The major factor due to which marketing mix affects pricing decisions is promotions. This is because promotions directly contribute to the positioning of the brand in the consumers mind. Thus, some companies like Adidas and Reebok spend a lot on promotions and hence have a higher positioning in the minds of the customer and therefore higher prices as well. On the other hand, companies like Bata put lesser investment in promotions and more investment in manufacturing larger quantities of products so that they can reach the masses. Thus they have cheaper pricing. Thus, promotions and product combine can also affect the marketing mix price decisions.
4) Place – Imagine a company like Amul which delivers products at cost plus pricing to all corners of the country. Similarly all FMCG companies have to following breaking the bulk to transport products. The major cost for such companies is transportation. A drop in 1 rupee for diesel affects the pricing of the products because then the company saves lacs. On the other hand, a hike by one rupee will lessen the margins to the company. Thus, as transportation and placement of products is a major cost for the company, it affects pricing decisions.
5) Physical evidence, people, process – All of the mentioned 3 components in this point viz – physical evidence, people and process are elements of the service marketing mix. And all three can contribute to the costing of the product and hence the final pricing. The best way to explain this is through example of restaurants. One restaurant has amazing interiors, a cook who has cooked in five star hotels, and a process via which it can deliver fresh and delicious food in minutes at your table. Another restaurant has basic painting and tables, strictly OK food, and it can deliver food in a reasonable time. Thus, both hotels will have separate pricing structure. Plus your behavior will vary accordingly. When you are alone you might go to the basic hotel. But when with family, you will like to go to the better hotel. Thus, the pricing of both hotels will vary because the type of customers walking in is also different.
Thus, overall we can see that the marketing mix comprises of many different elements. Each element contributes in its own manner because of which marketing mix affects pricing decisions.