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

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

Price functions as an economic mechanism by means of supply which 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.

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. The price of the service considers all the elements connected in making the service what it is.

A. Definition of Price Based on Experts

So that you can find out more clearly about prices, here are some definitions of prices 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 to obtain the benefits of the product.

2. According to Philip Kotler

Kotler, stated that price is the amount of money charged for a product or service. This means that price is the sum of the values ​​that must be paid by consumers in order to own or benefit from a product or service.

3. According to Joko Untoro

Joko Untoro, stated that price is the ability possessed by a good or service expressed in the form of money.

4. According to Samsul Ramli

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

5. According to Imamul Arifin

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

B. Price Concept

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


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

2. Value or Value

The value of a product in exchange for another product. This value is seen in situations of barter or the exchange of goods for goods. Currently, economic activities are no longer carried out by barter, but instead use money as a measure called price.

C. Price Function

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

1. Price Distribution Function

Prices have the ability to redistribute scarce resources. The scarcity of resources results in high resource prices, so that only customers who buy show willingness and ability.

For example, diamonds are a luxury item that can only be purchased by those who are willing and have sufficient financial resources to buy them.

2. Price Signal Function

Often, bid prices vary due to the volume of market bidding and supply. If the demand is high, but the supply is low, then 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.

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Likewise, when the market has an excess of a particular commodity due to lower demand and higher supply, the price tends to fall. This makes it possible to eliminate surplus commodities in the market.

3. Price Intensive Function

Generally, when the price of a commodity rises, it is because demand increases. This allows suppliers to see changing customer demand trends in the marketplace. Therefore, they will prefer to make certain offers as they are more 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 are carried out in turn. This will enable producers and customers to make decisions according to existing and applicable regulations. For example, offers with more expensive quality will be different from offers using cheaper raw materials.

Therefore, in general, customers will get this information from drastic differences in the prices of similar offers. 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 results of suppliers or manufacturers to decide whether production goods or supply offers are able to help them gain more significant profits.

Let’s see how the market price is determined. Is the market price in accordance with the provisions that have passed. Housewives will experience difficulties if market prices soar. Therefore, the determination of prices 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.

Conditions where the demand for an offer is greater than the offer, the price will rise causing only buyers who have access to the offer to be able to have the will and ability to buy the product. It will meet with the price equilibrium.

The equilibrium point is often called supply exceeding demand which causes the price of goods to fall.

D. Types of Prices

After understanding and understanding what a price or fee is, let’s proceed with the following types of prices:

1. Subjective price, namely the price set by someone’s opinion or estimate.

2. The objective price (market price) is the price agreed between the buyer and the seller who sometimes makes an offer.

3. Cost of goods, namely the real value for the product.

4. The selling price is the price based on the increase in 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 their daily needs. The average community is trying to meet 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 make it easier to determine the price and it will be seen for the position of the feasibility of the product from its economic value if it is examined carefully and carefully.

So, here are some objectives of pricing that need attention, including:

Price stability, in which the company will control the price. In addition, price control efforts will be properly and properly directed to prevent price wars from occurring. This event will allow for a drastic decline in demand, and so on.

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

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A businessman must maintain and improve his business to achieve income goals 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 issued a policy for pricing to be in accordance with calculations to avoid losses. In addition, price fixing is able to increase profits, because it will depend on each individual business whether it is able to survive because each business really thinks about profits that are higher than its expenses.

Basically, pricing is not arbitrary in determining, but must be in accordance with recommendations or existing methods. Therefore, let’s see what my method is for setting prices. There are four methods of pricing, including:

1. Fee-based

In general, this cost-based is an important aspect because it can influence supply and costs. Where the price will be determined based on production costs and product marketing costs. Sometimes it is enough to cover direct costs, profit, loss and overhead.

2. Request based

On demand-based is a method that emphasizes the 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 in this profit-based approach, there are three approaches, namely target profit pricing (pricing based on profit targets), target return on sales pricing (pricing based on sales) and target return on investment pricing.

4. Based on competition

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

F. Difference between price and cost

The economy is always increasing 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 concepts that are different in pronunciation but different in finance. For example: “Rani had to pay dearly for a sample test at the University of Indonesia laboratory that she recently paid for.” It was aimed at the pronunciation of costs, not prices.

As for the bid price, which is the monetary amount paid by the customer to get a particular offer, which means that the cost of the offer takes into account the seller’s expenses in making the offer. This means that the price is related to the buyer, while costs involve the producer or 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 all are the same to maximize profits to reduce costs which will then affect the total price. This means that in this 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 cost itself will be higher than the general price. Therefore many companies will experience losses due to sales that are unable to return to the amount spent in making offers.

If the company experiences a situation where the price and bidding costs are the same, then the company is experiencing a breakeven point, which means 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 conditions. Which means apart from selling or as a producer you must benefit from the business or business that you are doing.

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 manage your income or money earned in business.