Most important Factors affecting Pricing Decisions
- Objectives of the Business : There may be various objectives of the firm such as getting a reasonable rate of return, to capture the market, maintenance of control over sales and profits etc. ...
- Cost of the Product: Cost and price of a product are closely related. ...
- Market Position. ...
- Competitors Prices: Competitive conditions affect the pricing decisions. ...
Which are the factors that influence the pricing strategy?
Factors Influencing Pricing – Nature of Consumer Demand, Competition, Distribution Network, Internal Factors and Environmental Factors . The pricing decision is potentially a very complex one because it often has to adjust to the requirements of different groups within the firm. For example, finance and accounting may be concerned with price only in relation to costs and the organisation’s ...
What are the factors affecting pricing?
The main determinants that affect the price are:
- Product Cost
- The Utility and Demand
- The extent of Competition in the market
- Government and Legal Regulations
- Pricing Objectives
- Marketing Methods used
What factors influence the pricing of new products?
There are several factors a business needs to consider in setting a price:
- Competitors – a huge impact on pricing decisions. ...
- Costs – a business cannot ignore the cost of production or buying a product when it comes to setting a selling price. ...
- The state of the market for the product – if there is a high demand for the product, but a shortage of supply, then the business can put prices up.
What are some factors that affect investment decisions?
What Factors Affect Individual Investment Choices?
- Time horizon. One of the most important considerations in investing is how long you have before you'll need to get the money you're investing back.
- Available money to invest. Having a diversified portfolio is an important way to reduce risk. ...
- Tolerance for risk. ...
What are five factors that affect pricing decision?
Five factors to consider when pricing products or servicesCosts. First and foremost you need to be financially informed. ... Customers. Know what your customers want from your products and services. ... Positioning. Once you understand your customer, you need to look at your positioning. ... Competitors. ... Profit.
What are the factors affecting pricing decisions PDF?
Pricing decisions should be taken after analyzing following external factors:Demand for the Product: ADVERTISEMENTS: ... Competition: ... Price of Raw Materials and other Inputs: ... Buyers Behaviour: ... Government Rules and Restrictions: ... Ethical Consideration or Codes of Conduct: ... Seasonal Effect: ... Economic Condition:
What are the pricing decisions?
Pricing decisions are the choices businesses make when setting prices for their products or services.
What are the main factors affecting pricing decisions for international markets?
Pricing for international markets involves other factors related to foreign customer behaviors such as: economic and political ideologies of target market, education and technological, values and attitudes, social and cultural, language, religion and beliefs, legal as well as competitive factors to mention a few.
What are the internal and external factors affecting pricing decisions?
Internal factors that pricing are organisational factors, marketing mix, product differentiation, cost of the product and objectives of the firm. External factors that influence pricing decisions are demand, competition, suppliers, economic conditions, buyers and government.
What are the four main factors that influence a business pricing strategy?
Costs are the expenses of a firm. Price is the amount customers are charged for items....There are a number of factors to take into account when reaching a pricing decision:Customers. Price affects sales. ... Competitors. ... Costs.
What are the importance of pricing decisions?
Importance of Pricing – Helps in Determining Return, Determines Demand, Sales Volume and Market Share, Countering Competition, Builds Product Image and A Tool of Sales Promotion. Pricing is an important decision making aspect after the product is manufactured.
What are the objectives of pricing PDF?
Five main objectives of pricing are: (i) Achieving a Target Return on Investments (ii) Price Stability (iii) Achieving Market Share (iv) Prevention of Competition and (v) Increased Profits!
What are the factors that influence pricing decisions?
The factors influencing pricing decisions are divided into internal and external factors on the basis of whether the management has control over the factors or not. If the management has control over the factors, it will come under internal factors, if not it will come under external factors. So the internal factors are within the control ...
What is the internal factor that affects pricing decisions?
Another significant internal factor affecting pricing decisions is the organisational structure of the firm. Generally, the top management has full authority for framing pricing objectives and policies. Some firms allow workers’ participation in decision making and therefore in such firms, all the employees give their views and suggestions for the pricing policy. This is helpful to the firm if the firm has several products, requiring frequent pricing decisions and where prices differ in different markets.
Why should a marketer adopt a well-planned approach to pricing?
The marketer should know the factors that influence the pricing decisions before setting the price of a product.
Why do firms allow workers to participate in decision making?
Some firms allow workers’ participation in decision making and therefore in such firms, all the employees give their views and suggestions for the pricing policy. This is helpful to the firm if the firm has several products, requiring frequent pricing decisions and where prices differ in different markets.
How does market demand affect pricing?
Market demand for a product or service has great impact on pricing. If there is no demand for the product, the product cannot be sold at all. If the product enjoys good demand, the pricing decision can be aimed to utilise this trend.
How are cost and price related?
Cost and price of a product are closely related. The most important factor is the cost of production. In deciding to market a product, a firm should also try to decide what prices are realistic, considering current demand and competition in the market.
How does economics affect pricing?
Economic Conditions: This also affects the pricing decision of a firm. In a depressed economy, business activities will be considerably less, but in a boom condition, there will be hectic business activity. Therefore, economic conditions affect the demand for goods and services.
What are the factors that determine a firm's pricing objective?
A firm also has to look at a myriad of other factors before setting its prices. Those factors include the offering’s costs, the demand, the customers whose needs it is designed to meet, the external environment —such as the competition, the economy, and government regulations— and other aspects ...
How does the cost of a product affect its price?
The costs of the product—its inputs—including the amount spent on product development, testing, and packaging required have to be taken into account when a pricing decision is made. So do the costs related to promotion and distribution. For example, when a new offering is launched, its promotion costs can be very high because people need to be made aware that it exists. Thus, the offering’s stage in the product life cycle can affect its price. Keep in mind that a product may be in a different stage of its life cycle in other markets. For example, while sales of the iPhone remain fairly constant in the United States, the Koreans felt the phone was not as good as their current phones and was somewhat obsolete. Similarly, if a company has to open brick-and-mortar storefronts to distribute and sell the offering, this too will have to be built into the price the firm must charge for it.
How does availability of substitute products affect pricing decisions?
The availability of substitute products affects a company’s pricing decisions as well. If you can find a similar pair of shoes selling for 50 percent less at a third store, would you buy them? There’s a good chance you might. Recall from the five forces model discussed in Chapter 2 “Strategic Planning” that merchants must look at substitutes and potential entrants as well as direct competitors.
How does currency affect pricing?
In international markets, currency exchange rates also affect pricing decisions. Pricing decisions are affected by federal and state regulations. Regulations are designed to protect consumers, promote competition, and encourage ethical and fair behavior by businesses.
What are the factors that affect the economic environment?
In Chapter 2 “Strategic Planning” we noted that factors in the economic environment include interest rates and unemployment levels. When the economy is weak and many people are unemployed, companies often lower their prices. In international markets, currency exchange rates also affect pricing decisions.
How will buyers respond to price?
How will buyers respond? Three important factors are whether the buyers perceive the product offers value, how many buyers there are, and how sensitive they are to changes in price. In addition to gathering data on the size of markets, companies must try to determine how price sensitive customers are. Will customers buy the product, given its price? Or will they believe the value is not equal to the cost and choose an alternative or decide they can do without the product or service? Equally important is how much buyers are willing to pay for the offering. Figuring out how consumers will respond to prices involves judgment as well as research.
Why are promotion costs so high?
For example, when a new offering is launched, its promotion costs can be very high because people need to be made aware that it exists. Thus, the offering’s stage in the product life cycle can affect its price. Keep in mind that a product may be in a different stage of its life cycle in other markets.
How does advertising affect pricing decisions?
ADVERTISEMENTS: Affect the pricing decisions to a great extent. The marketers should set the prices as per the organizational goals. For instance , an organization has set a goal to produce quality products, thus, the prices will be set according to the quality of products.
How does an organization affect prices?
Affects prices significantly. The organization matches the prices with the competitors and adjusts the prices more or less than the competitors. The organization also assesses that how the competitors respond to changes in the prices.
Why do organizations need to set prices less than competitors?
Help an organization in determining price decisions. For instance, an organization has a pricing objective to increase the market share through low pricing. Therefore, it needs to set the prices less than the competitor prices to gain the market share.
What are legal and regulatory issues?
Legal and Regulatory Issues: Persuade marketers to change price decisions. The legal and regulatory laws set prices on various products, such as insurance and dairy items. These laws may lead to the fixing, freezing, or controlling of prices at minimum or maximum levels. iv.
Why do marketers analyze costs before setting prices?
By following this strategy, the organization can increase sales volumes in the short run but cannot survive in the long run.Thus, the marketers analyze the costs before setting the prices to minimize losses.
What does "change in demand" mean?
Refers to change in demand of a product due to change in price.
How do economic factors affect pricing decisions?
Economic factors such as boom or recession, inflation, and interest rates influence pricing decisions because they affect both production costs and consumer perceptions of its price and value.
What are the Factors Affecting Price Decisions in Marketing?
A company’s pricing decisions are influenced both by internal company factors and external environmental factors.
What is current profit maximization?
Many companies accept current profit maximization as their pricing goal. They anticipate what demand and costs will be at different prices and choose the price to produce the maximum current profit, cash flow, or return on investment.
Why is the price elasticity of demand less responsive?
The less elastic the demand, the more it is rewarding for the seller to raise the price. Several factors determine the price elasticity of demand. Buyers are less responsive to price when the product is unique, high in quality, prestige, or exclusiveness.
Why is price elasticity important?
It is also important for a marketer to understand price elasticity, which indicates how responsive demand will be to a change in price.
Why do consumers with limited budgets generally buy less of a commodity?
To sum up, consumers with limited budgets generally will buy less of a commodity if its price is exorbitant. In the case of goods having prestige value, the demand curve sometimes slopes upward. For example, a sunglass manufacturing firm found that by raising its price, it sold more sunglasses rather than less.
What is the only element in the marketing mix that fetches revenue?
All profit organizations and many non profit organizations must set prices on their products or services. Price is the only element in the marketing mix that fetches revenue; all other elements represent costs.
How can pricing decisions be affected?
The pricing decision can be affected by factors that are controlled by the marketing organization.
Who takes the pricing decision?
Organization may take the pricing decision keeping in mind social welfare, for instance pricing of essential food items or lifesaving medicines may be such that the entire society can afford and get benefit from it.
Why do ranges of prices occur?
A range of prices occur because sellers can differentiate their offers to buyers. iii. Oligopolistic competition – A market in which there are a few sellers, all of whom are highly sensitive to each other’s pricing and marketing strategies. Product can be uniform or non-uniform. iv.
Why do sellers have to consider the price charged by competitors?
In case of competition, each seller will have to consider the price charged by the competitors because selling above the competition price becomes difficult. iii. Government control – Sometimes the Government may announce a policy about pricing of goods or may specifically fix and control the prices of goods.
How does competition affect demand?
Competition in the target foreign market increases the elasticity of demand as it would have been otherwise. Sometimes may be so severe that the exporter has no other option except to follow the market leader.
Why do costs not determine the price?
The costs do not determine the price because costs of each producer differ substantially due to different internal and external factors while the prices of their products are close to one another. The price must also vary substantially. A firm would suffer a loss if costs are to determine the price.
What are the internal factors of a company?
Internal factors include the company’s marketing objective, costs and marketing strategy. External factors include the nature of the market, demand, competition and external factors.
What are the factors that affect pricing decisions?
Most important Factors affecting Pricing Decisions. Objectives of the Business : There may be various objectives of the firm such as getting a reasonable rate of return, to capture the market, maintenance of control over sales and profits etc. A pricing policy thus, should be established only after proper consideration of the objectives of the firm.
How does competition affect pricing?
Competitors Prices: Competitive conditions affect the pricing decisions. The company considers the prices fixed and quality maintained by the competitors for their products.
Why are prices different between producers?
The prices of the products of different producers are different either because of difference in quality because of the goodwill of the firm. A reputed concern may fix may fix higher prices for its products on the other hand, a new producer may fix lower prices for its products. Competition may also affect the pricing decisions.
What are the factors that influence pricing decisions?
While some of these are external or environmental factors (such as competition, demand conditions and so on), others are internal factors (like marketing objectives, cost conditions and so on).
How does economics affect pricing?
Economic factors such as inflation, boom or recession, and interest rates affect pricing decisions because they affect both the costs of producing a product and consumer perceptions of the product’s price and value.
What is the relationship between price and demand?
While costs set the lower limit of prices, the market and demand set the upper limit. Buyers balance the price of a product or service against the benefits of owning it. Therefore, before setting prices, the marketer must understand the relationship between price and demand for his product. Price-demand relationship varies for different types of markets and how buyer perceptions of price affect the pricing decision. Economists recognize four types of markets, viz. pure competition, monopolistic competition, oligopolistic competition and pure monopoly. Each presents a different pricing challenge and pricing freedom.
Why do monopolistic markets have a range of prices?
A range of prices occurs because sellers can differentiate their product/service offering to buyers. Buyers see differences in sellers’ offerings and will pay different prices for them.
How are price and demand related?
In the normal case, demand and price and inversely related. For ‘prestige’ goods, raising the price may result in more sales. In measuring the price-demand relationship, the marketer must not allow other factors affecting demand to vary. They also need to know price elasticity, that is, how responsive demand will be to a change in price. If demand hardly changes with a small change in price, the demand is said to be inelastic. If demand changes greatly, it is said to be elastic. Price elasticity of demand is determined by many situations.
Why can't a seller charge more than the market price?
A seller cannot charge more than the going price because buyers can obtain as much as they need at the going price. Nor would sellers charge less than the market price because they can sell all they want at this price. Example: The prices of vegetables are subject to day-to-day variations because of supply and demand factors.
Why do firms set prices so low?
Sometimes a firm might set prices so low as to prevent competition from entering the market as they might lead the competition to regard the market as less attractive. Non-profit organizations may adopt a number of other pricing objectives such as full cost recovery, partial cost recovery or set a social price geared to the distributed income situations of different clients.
1. Price of Oil
This is the big one, because nothing adds to an airline's cost of doing business like the price of jet fuel. In 2011, it became the No. 1 operating expense, zooming from about 20 to 40 percent, and that was after oil prices eased from 2008's high of nearly $150 per barrel.
2. Flight Distance
This is common sense, right? The farther you fly the more expensive your ticket will be. But not always! A flight between Los Angeles and Portland, Ore., booked last week for late January, cost about $160 round-trip. But if you flew twice as far -- to Chicago, say -- you didn't pay double. That airfare was only another $14 each way.
3. Competition
The more airlines, the merrier -- for passengers. Fierce competition means lower ticket prices. Recent examples of more airlines causing lower prices: flights to and from Boston and Denver.
4. Timing of Purchase
When you buy your tickets matters. If you buy at the last minute – typically within seven days of departure, as business travelers do –you’ll pay a hefty premium (which is why airlines love their road warriors). The best time to buy domestic tickets is between three-and-a-half months and two or three weeks before departure.
5. Timing of Flight
When you fly also matters. The cheapest days to fly, because of low demand, are Tuesdays, Wednesdays and often Saturdays. Expensive periods include holidays like Thanksgiving and Christmas, and other must-fly periods like summer vacations.
6. Big Brother Factor
You better believe the government gets its cut of airline tickets. This includes the Sept. 11 Security Fee, which will rise later this year from the current $2.50 per flight segment to a flat $5.60 or $11.20 per round-trip flight. And don't forget the “regular” taxes that also take a bite out of your ticket - and wallet.
7. Passenger Appetite
Believe it or not, you do have some control over ticket price, and it's real simple: If airlines price their tickets too high, people won't fly. It works, too; last year, individual airlines tried to raise ticket prices on 12 separate occasions, but competing carriers said "no" and the hikes didn't happen.
What Are The Factors Affecting Price Decisions in Marketing?
Internal Factors Affecting Pricing Decisions
- four internal factors that affect the company’s pricing are; 1. Company’s Marketing Objectives. 2. Marketing Mix Strategy. 3. Costs. 4. Organizational Considerations.
Marketing Objectives
- The company must decide on its strategy for the product before setting the price. The task of pricing becomes fairly direct if the company has selected its target market and positioning carefully. For example, if Toyota decides to produce a new sports car to compete with European sports cars in the high-income segment, it will have to charge a high price. Thus, the pricing stra…
Marketing Mix Strategy
- Price is one of the four marketing mix tools that a company uses to accomplish its marketing objectives. Price decisions must be synchronized and coordinated with product design, distribution, and promotion decisions to constitute a uniform and effective marketing program. Decisions made for other marketing-mix variables usually affect pricing decisions. For example, …
Costs
- Costs set the lowest level of the price below, which the company can not charge for its product. The company wants to charge a price that covers all of its costs for producing, distributing, and selling the product and brings a good return for its effort and risk. A company’s costs may play an important role in its pricing strategy. Companies having lower costs can set lower prices, which …
Organizational Considerations
- A company’s management must decide who should be given the responsibility of setting prices. Companies deal with pricing in several ways. In small companies, prices usually are set by top management rather than by the marketing or sales departments. In contrast, in large companies, pricing typically is handled by divisional or product line managers. In industrial markets, salespe…
External Factors Affecting Pricing Decisions
- Various factors affect the pricing decisions of a company. 1. Market and Demand. 2. Competition. 3. Other Environmental Elements. The influences of these factors can be stated as under:
The Market and Demand
- While cost considerations set the lower limit of prices, the market demand sets the upper limit. Both consumer and industrial buyers weight the price of a product or service against the benefits of having it. So, before setting prices, the marketer must appreciate the relationship between price and demand for its product. The following discussion explains how the relationship between pric…
Competition
- Another important external factor affecting the firm’s pricing decisions is competitors’ costs and prices and probable competitor responses to its own pricing decisions. A consumer who is contemplating buying a National micro oven will compare National’s price and value against the prices and values of micro ovens of Sharp, Toshiba, Sanyo, and others. Moreover, a firm’s pricin…
Environmental Elements
- A firm must also consider other elements of its external environment while setting the price. A country’s economic milieu can have a strong impact on the firm’s pricing strategies. Economic factors such as boom or recession, inflation, and interest rates influence pricing decisions because they affect both production costs and consumer perceptions of its price and value. The …