Many forces affect the selling price. The price manager must understand them to decide which price to charge. In our approach, those forces are called price vectors.
As shown in the following diagram, four vectors act on price.
Attributes of the offer
The first and crucial vector directing the price of an offer is its attributes. Offer attributes are the characteristics that define, qualify, and distinguish a product or service from others.
The attributes of a sale object can be classified according to its inherence into intrinsic and extrinsic, its tangibility into tangible and intangible, its immanence of use and signaling, and its perception into perceived and unperceived.
Pretension of the offerer
The second vector driving the price is the pretension of the offerer.
To meet that pretension, the offerer must consider (a) the business’s expected performance, (b) its operating conditions, and (c) the internal circumstantial pressures.
Market conditions
Market conditions are decisive for the success of the supply mix. No matter how many attributes the offered product possesses and how plausible the offerer’s pretension may be, the proposed prices will only achieve their objectives with favorable conditions.
This vector comprises the subsets offer behavior, demand behavior, competitors’ action, access to offer, and business environment.
Value perception of the customer
The fourth and no less significant price vector is customer value perception.
For pricing, the value of a good or service, the perceived value of the supply, or perceived customer value, is the monetary expression of the relative usefulness of something to those who purchase or intend to purchase it.
Each vector drives the offer price with a certain intensity and direction, resulting in the price practiced.
C. L. Eckhard, author of Pricing in Agribusiness: setting and managing prices for better sales margins.