The last of the four Ps is price. This aspect of the marketing mix focuses upon the amount that a customer pays for a product. Now, price is different from the other three elements of the marketing mix. Product, promotion, and placement, all of these create value for a customer, while price captures this value for the firm. Thus, having a good pricing strategy is critical for your firm's profitability and very survival. The development of a pricing strategy is a complex decision and often entails considering a products cost of production. What customers are willing to pay for it and the prices of competing products, for example, Coke. Coke has traditionally employed a value-focused pricing strategy in order to ensure that this product is affordable to the mass market. Over the years, Coke has also faced intense competitive pressure from Pepsi. Thus, Coke has also tried to match the price of this competitor. Thank you, today, a can of Coke is less than a dollar in the US and most other countries, thus it is very affordable to most consumers. The price portion of the marketing mix has a number of key concepts, including break-even analysis, price elasticity, and reference prices. In this module, we'll focus on two fundamental concepts, pricing strategy by firms, and price knowledge among customers. A pricing strategy is a firm's basic approach to how it prices is products. Now, firms employ a very broad range of pricing strategies. Three of the most common pricing strategies are cost-plus pricing, competitor-based pricing, and value-based pricing. Cost-plus pricing is a technique in which the price of a product is based upon the cost of manufacturing or acquiring a product plus a commonly accepted markup percentage. For example, in the US, most car dealers price their cars at their invoice price plus a margin between 5 to 10%. Competitor-based pricing is a strategy in which the price of a product is based upon closely matching the prices of relevant competitors. For example, if the price of gasoline is lowered by one gas station, nearby stations will also lower their prices in order to match the competitor's price. Value-based pricing is a strategy that focuses on the added value that a product delivers to its customers. For example, a cold soda on a hot day during a sporting event is priced higher and provides more value than a soda sitting on a store shelf a mile down the road. Now, let's take a look at price knowledge. Knowledge about prices is important because this knowledge helps set price expectations and also gives consumers more power in the marketplace. After all, knowledge is power. Academic research on this topic suggests that for many product categories consumers have a relatively low level of price knowledge in general. For example, one famous study about consumer price knowledge found that less than half of all supermarket shoppers knew the price of the items that they placed in their shopping carts. Subsequent research has found that although most consumers don't have a very accurate recall of exact prices in short-term memory, they have pretty good recognition of appropriate prices in their long-term memory. In other words, although most consumers can't say how much something cost when asked to name its price, when they see a price of a product, they can tell if that price is close to the one they're used to seeing or paying. Now what's changing? For most of the products that we purchase, the price has been set by the firm that either makes it or sells it. And we as customers often don't know the exact price until we see it on the shelf or on a web page. For example, I bought this bottle of Coke at my local grocery store for the price of $1.29. I didn't know the exact price until I entered the store, and this price was not negotiable. I atually asked if they would sell it to me for a dollar, and the store clerk looked at me rather oddly and said no, that's not how it works. Thank you. This fixed firm-centered approach is now starting to break down due to the rise of new digital tools. The price that we pay for something is becoming increasingly under our control. In a nutshell, the digital revolution allows consumers to get lots of things for free and choose the price options that fit them best. Great example of this is information. For most of human history, Information was hard to obtain and also quite expensive. For example, when I was young, there were door-to-door encyclopedia salespeople. This is a true thing, you can google it. Door-to-door encyclopedias salespeople who would charge thousands of dollars for a set of books that contained what seemed like, at the time, all the knowledge in the world. Now, thanks to the digital revolution, all of us have access to unlimited information for free. Perhaps you're even viewing this video for free. Overall, the rise of digital tools has made it possible to get lots of things that are free or very cheap. For example, as we discussed in module three, Thingiverse allows anyone in the world to download over a million different digital designs that can be transformed into physical products almost for free. Also, if you happen to own a smartphone or a tablet, you probably downloaded an app that was free, but offered you the opportunity to gain access to added features for a low price. This model is commonly referred to as a freemium business model, and we'll discuss this more in this modul. In sum, in this new digital marketing environment, we are moving from fixed prices to flexible prices. In this module, we'll discuss how new digital tools are changing this element of the marketing mix and altering how we think about price.