PRICE

Definition

Price is the amount of money a buyer is willing to pay for a product or service at a given time and under specific circumstances. It should not be confused with two related concepts: cost (what the product costs the company—purchase, transportation, storage) and perceived value (what the customer believes the product provides). A reasonable price generally falls between the two: above cost to generate a margin, and close to perceived value to remain acceptable to the customer.

In economics, price is also the signal that balances supply and demand: it rises when demand exceeds available supply, and falls when the opposite is true. In retail, this theoretical mechanism faces practical constraints—brand image, psychological price points, competitive alignment, and supplier constraints—which pricing is specifically designed to address.

Why it matters

• It is the only factor that directly generates revenue: a reduction in costs or better communication indirectly improves profitability, while an incorrectly set price immediately affects it, whether upward or downward.

• This is a signal that customers pick up on: beyond its economic role, the price conveys a positioning (premium, affordable, promotional) even before the product is tried.

• It can be reversed more quickly than other levers: changing a price takes just a few seconds at the register or online, whereas a change in product or distribution takes months. This reversibility makes it both a powerful lever and a risky one if the changes are not properly managed.

Real-world example

It costs €6 to produce and deliver an item to the store (the cost). The customer estimates, based on the brand and perceived quality, that it is worth about €12 (the perceived value). The retailer can set a selling price of €9.99 (the price): this yields a comfortable margin above cost while remaining below the customer’s perceived value—leaving room for a one-time promotion without ever selling at a loss.

How a Price Is Determined in Practice

Three approaches to fixation coexist, rarely exclusively:

• Cost-based pricing: Start with the cost and add a target margin.

• Value-based pricing: starting with the value perceived by the customer, regardless of the cost of goods.

• Competitive pricing: basing prices on those charged by competitors for comparable products.

In retail, most established chains combine all three approaches depending on the product category: cost-based pricing for low-stakes items, value-based pricing for differentiated products, and competitive pricing for key performance indicators (KPIs) where customers make direct comparisons.

Common pitfalls

• Confusing price and margin: A high price does not always mean a high margin if the underlying cost has also increased.

• Setting a price once and for all: a retail price is constantly adjusted (based on seasonality, changing costs, and competitive trends); it is never a fixed figure.

• Managing price in isolation, without linking it to strategy: A consistent price stems from an explicit pricing strategy, not from isolated, product-by-product adjustments.

FAQ

What is a price, in the economic sense of the term?
It is the amount of money a buyer is willing to pay in exchange for a good or service. In theory, it results from the balance between supply and demand, but in retail, it is also shaped by the cost of goods sold, the value perceived by the customer, and the competitive landscape.

What is the difference between price and value?
Price is what the customer actually pays; perceived value is what the customer believes they are getting in return. A good price falls below the perceived value (so that the purchase seems justified) and above the cost of goods sold (to generate a margin).

What is the difference between price and cost?
Cost is what the product costs the company (purchase, transportation, storage, labor); price is what the company charges the customer. The difference between the two is the margin.

How do you set a retail price?
Generally by combining three approaches: cost plus a target margin, the value perceived by the customer, and the price charged by competitors for comparable products—with different considerations depending on whether the product is a loss leader, a high-margin item, or a key performance indicator (KPI).

Is the price the same everywhere for the same product?
No, not necessarily: the same product may be priced differently depending on the sales channel (store, website, marketplace), geographic region, or time period, as long as this pricing differentiation remains consistent with the brand’s image and, in France, complies with the applicable regulatory framework.