Factors Affecting Pricing Decisions (15 Factors):
- (1) Objectives: Many companies have established marketing goals or objectives and pricing is based to achieve such goals.
- (2) Costs: The most decisive factor in pricing is the cost of production. ...
- (3) Demand: In consumer-oriented marketing, the consumers influence the price. ...
- (4) Competition: Another factor that influences pricing is competition. ...
What factors affect a company's pricing decisions?
A company’s pricing decisions are affected by both internal and external factors. 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.
How should a marketer approach the pricing decisions of a product?
Therefore, a marketer should adopt a well-planned approach for pricing decisions. The marketer should know the factors that influence the pricing decisions before setting the price of a product. Now, let us discuss the factors affecting the pricing decisions (as shown in Figure-2) briefly: i.
What are the three important factors in determining the price range?
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.
What is the most decisive factor in pricing?
The most decisive factor in pricing is the cost of production. In the past, fixing of price was a simple affair- just add up all the costs incurred and divide the final figure by the number of units produced.
What are the 4 main factors that influence a business pricing?
Marketing's four Ps – product, price, promotion and placement – are the basic components of any marketing mix. The decisions you make with regard to all of these elements can mean the difference between success and failure.
What are the 4 factors to be considered in pricing?
Whether you are starting out or starting over, here are five factors to consider when pricing your products and services.Costs. First and foremost you need to be financially informed. ... Customers. Know what your customers want from your products and services. ... Positioning. ... Competitors. ... Profit.
What are the four 4 pricing strategies explain each strategy?
These are the four basic strategies, variations of which are used in the industry. Apart from the four basic pricing strategies -- premium, skimming, economy or value and penetration -- there can be several other va... A product is the item offered for sale.
What are the four common factors that influence product pricing?
ADVERTISEMENTS: Main factors affecting price determination of product are: 1. Product Cost 2. The Utility and Demand 3....Marketing Methods Used.Product Cost: ... The Utility and Demand: ... Extent of Competition in the Market: ... Government and Legal Regulations: ... Pricing Objectives:More items...
What are the main factors of pricing explain?
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 are the factors affecting price decision?
The market demand for a product or service obviously has a big impact on pricing. Since demand is affected by factors like, number and size of competitors, the prospective buyers, their capacity and willingness to pay, their preference etc. are taken into account while fixing the price.
What are pricing decisions?
Pricing decisions are the choices businesses make when setting prices for their products or services.
What are the three major pricing strategies?
In this short guide we approach the three major and most common pricing strategies: Cost-Based Pricing. Value-Based Pricing. Competition-Based Pricing.
What are the 3 pricing objectives?
The three pricing strategies are growing, skimming, and following. Grow: Setting a low price, leaving most of the value in the hands of your customers, shutting off margin from your competitors.
What does place mean in the 4 Ps?
Place refers to where consumers buy your product, or where they discover it. Today's consumers may learn about products and buy them online, through a smartphone app, at retail locations, or through a sales professional.
What are the factors to consider in pricing products?
Product Pricing: Which Factors to Consider?Identify your Product Pricing Goals. Regardless of whether you're an enterprise, or a small business, without a business goal you can't succeed. ... Know your Costs. ... Know your Customers. ... Market Positioning. ... Product Value. ... Do your Market Research.
What factors should be considered when setting a price?
7 Key Factors to Building a Good Pricing StrategyMarket research. Before you can begin to think about attaching a number to your goods or services, it's crucial that you have a strong understanding of the market they fall into. ... Value. ... Cost of goods. ... Labor. ... Distribution. ... Economies of scale.
What are the things to consider in pricing product?
Product Pricing: Which Factors to Consider?Identify your Product Pricing Goals. Regardless of whether you're an enterprise, or a small business, without a business goal you can't succeed. ... Know your Costs. ... Know your Customers. ... Market Positioning. ... Product Value. ... Do your Market Research.
What does place mean in the 4 Ps?
Place refers to where consumers buy your product, or where they discover it. Today's consumers may learn about products and buy them online, through a smartphone app, at retail locations, or through a sales professional.
What are the factors to consider in determining the price of the menu?
Cost is the primary factor to consider when choosing how much to charge for the items on your menu. . To make a very basic costing of your menu, you'll need to calculate your food cost percentage....Overhead expensesRent.Marketing budget.Renovation costs.
What are the factors that affect pricing decisions?
Following are the two main factors affecting pricing decisions: 1– Internal Factors. 2- External Factors.
Who sets the price of a product?
There are many ways to deal with such an issue. In smaller businesses, top management is responsible for setting the price of the product. On the other hand, in large organizations product line managers or divisional managers have the authority to set prices for the product or service. In case of industrial markets, salespersons handle the pricing of products by negotiating with the customers. If certain price sensitive industries have a separate pricing department that can either directly determine the best prices. In some firms, top management like the proposed prices of the lower level employees like salespersons etc.
Why do monopolies charge higher prices?
Another market condition is monopoly in which there is only a single seller who can offer its products or services at different rates. As the seller is single and the buyers are much more , therefore the seller charges a relatively higher price. Because there is no fear of competition. In case of regulated monopoly, the seller can charge only a fair price. However, in case of unregulated monopoly the seller has freedom to charge extra for its offering. Mostly the monopoly firm keeps its price low for a number of reasons like quick penetration in the market, government intervention etc.
How does price affect marketing?
To make the market stable and avoid government intervention. Also, to increase demand by lowering prices etc. In short, the decisions taken in respect of price affect other marketing mix variable decisions. So, all of these decisions should be consistent with one another to make a marketing program effective. The business should also keep its product as differentiated and set a relatively high price for the uniqueness of its product. In this way price is based on many non-pricing factors.
Why is price important?
Price is an important element that serves as the basis for the choice of the customers in the purchase in the old days. However, now many other elements are considered as more determining than price alone in Consumer Behavior. Price is set by the negotiation between customers and the sellers.
Why is profit maximization important?
The profit maximization purpose becomes secondary importance for such a business. Because its survival is at stake due to unfavorable market conditions like tough competition, changes in tastes of customers, etc. In this case, the business tries to keep its price low.
How are lower limits of price determined?
We have already discussed that the lower limits of price are determined by the costs incurred. On the other hand the upper limits are determined by the demand and market elements. Price is balanced by the benefits of owning the relative product or service by consumer and industrial customers. For this purpose the price and demand relationship for a product is essential to be understood before setting its price.
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.
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.
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 is the only element of marketing mix that helps in generating income?
Price is the only element of marketing mix that helps in generating income. Therefore, a marketer should adopt a well-planned approach for pri cing decisions. The marketer should know the factors that influence the pri cing decisions before setting the price of a product. ADVERTISEMENTS:
What does "change in demand" mean?
Refers to change in demand of a product due to change in price.
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.
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 is a Pricing Decision?
A pricing decision is the set of processes that a business follows to decide what price to charge for a product or service.
The importance of a Pricing Decision
Your Pricing Decisions will drive revenue for your business, affect the growth (or lack thereof) of your customer base, and help you to achieve profitability in various market landscapes. And so, the importance of a Pricing Decision cannot be understated.
What are the three Major Influences on Pricing Decisions?
Here are the 3 Major Influences on Pricing Decisions that you will face in your business:
Why do people use price as an indicator of quality?
Price strongly influences quality perceptions of such products. If a product is priced higher, the instinctive judgement of the customer is that the quality of the product must be higher, ...
Why are list prices high?
Sometimes list prices will be high because middlemen want higher margins. But some retailers can afford to sell below the list to customers.
Why are pioneer companies able to charge high prices?
The pioneer companies are able charge high prices due to lack of alternatives to the customers. The company’s high profits lure competitors who are enticed by the possibility of making profits.
Why do companies launch cut price fighters?
They launch cut-price fighter brands to compete with low price rivals . This has an advantage of maintaining the image and profit margins of existing brands.
What are the factors that influence pricing decisions?
Among the many factors influencing the pricing decisions, the three major influences are customers, competitors and costs.
How does competition affect pricing decisions?
No business operates in a vacuum. Competitors’ reactions also influence pricing decisions. A competitor’s aggressive pricing may force a business to lower its prices to be competitive. On the other hand, a business without a competitor can set higher prices. A business with knowledge of its competitor’s technology, plant capacity and operating policies is able to estimate its competitors’ cost, which is valuable information in setting prices. Managers consider both their domestic and international competition in making pricing decisions. Firms with excess capacity because demand is low in domestic markets may price aggressively in their export markets.
What is total cost plus pricing?
Total cost plus or full cost plus pricing involves all costs plus a profit margin. It includes not only the product’s direct costs but also the indirect costs incurred by the overall company which have to be allocated to different products. An obvious problem in this method is the determination of total costs. If multiple products are manufactured, the cost determination process is complex. In this situation, indirect or non-manufacturing costs have to be distributed among the different products in order to determine finally the full cost of different products.
How does differential cost pricing work?
Differential cost pricing differs from variable cost pricing in which a mark up on variable cost is added , whereas both variable costs and fixed costs are included in the differential costs on which a markup is determined. This method can be applied where some revenue above differential cost may be received rather than no revenue at all. Such additional revenue makes some contribution towards the recovery of fixed costs which are already incurred.
How do costs affect prices?
Costs influence prices because they affect supply. The lower the cost relative to the price, the greater the quantity of product the company is willing to supply. A product that is consistently priced below its cost can drain large amounts of resources from an organisation.
Why is Pareto analysis important?
Such analysis helps the management to design appropriate pricing strategies for 80% of its product groups so that they can contribute more in overall sales revenue of the firm.
Why is cost information important?
In many cases, cost information is of vital importance in pricing decisions. The discussion in the preceding sections has focused on how pricing decisions are influenced by the cost of the product, actions of competitors and the extent to which customers value the product.
Figure 1 – Monopoly price-setting
Monopolistic competition and oligopoly price setting are generally predicted to fall somewhere between the perfect competition and the monopoly outcomes. That is, firms in monopolistic competition and oligopoly have some, but not absolute, price-setting power.
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Factors Affecting Pricing Decisions – Internal and External Factors
Factors Affecting Pricing Decisions – Price Factors and Non-Price Factors
- Price Factors in Pricing Decisions:
Pricing is like a tripod. Costs, demand and competition are its three factors. It is not possible to say that one or another of these factors determines price. The significance of these factors in pricing is as follows: (1) Role of Costs: It is a popular fallacy to believe that price depends upon … - Non-Price Factors in Pricing Decisions:
Following non-pricing factors play important roles in creating demand in foreign countries: (1) Confidence: Sometimes the importers of developed countries do not have much confidence in the quality of products manufactured in developing countries. Thus Indians and exporters of other d…
Factors Affecting Pricing Decisions – Internal Factors and External Factors
- The final price for a product may be influenced by many factors which can be categorized into two main groups: 1. Internal Factors: When setting price, marketers must take into consideration several factors which are the result of company decisions and actions. To a large extent these factors are controllable by the company and, if necessary, can be altered. However, while the org…
Factors Affecting Pricing Decisions
- Pricing is the process of determining what a company will receive in exchange for its products. Pricing decisions are of strategic importance to any enterprise. Pricing is the only element in marketing mix accounting for demand and sales revenue. Price is the only factor which determines the income, rest all are cost factors. A lot of economic and social objectives matter i…