Main factors affecting price determination of product are: 1. Product Cost 2. The Utility and Demand 3. Extent of Competition in the Market 4. Government and Legal Regulations 5. Pricing Objectives 6. Marketing Methods Used.
Full Answer
What are some of the internal factors influencing pricing?
Some of the internal factors influencing pricing are:- 1. Organisational Factors 2. Marketing Mix 3. Product Differentiation 4. Cost of the Product 5. Objectives of Firm 6. Business Objectives 7. Cost of Production 8. The Status of the Seller 9. Stage in the Product Life Cycle 10. Marketing Objectives 11. Marketing Mix Strategy 12.
What are the factors affecting the price of a product?
If prices of raw material goes up then the price of finished goods are bound to go up. Also suppliers pricing policy has a direct impact on the prices. Scarcity or abundance of raw material will also determine its prices’ thereby affecting the overall price. Overall economic conditions have a very important role to play in the pricing decision.
What is the price of a product based on?
Price of every product is based on certain factors such as cost of the product, profit expected, government regulations etc.
What is the relationship between product differentiation and price?
The theory is, the higher the product differentiation, the more will be freedom to set the price, and the higher the price will be. Costs and profits are two dominant factors having direct impact on selling price. Here, costs include product development costs, production costs, and marketing costs.
How does the price of a product affect the price of a product?
The cost of the product helps the producer to fix the lower limit of the price. The demand of the product will help in fixing the higher limit of the price. The higher limit of the price means that the price cannot exceed the demand of the product. The buyer should be ready to pay the amount of price which the company has fixed. The rational buyer would always try to bargain a lower the price and a seller would try to cover the cost and add some profit. And to manage these two elements, the price should be according to interest of both the parties. When the demand of the product is inelastic i.e. the change in price does not change the demand or there is only small amount of change in the demand, then the firm will be in position to fix the price in their favour.
What is the cost of a product?
Cost of a product or service is one of the most important factors which affect the price of the product or service. Whenever a firm is fixing price of their product or service they need to consider the amount that they have invested in its production or procurement. Every organization wants to cover the cost of the product or service along with earning some amount of profit. While in some cases the cost may not be covered initially. For example: while market penetration i.e. entering a new market or introducing a new product would require the company to set a price which is lower than the cost. But in longer run, covering cost and earning some profits is important. Without covering the cost, breakeven point cannot be achieved.
What are the three types of costs that a company considers when fixing the price?
There are three main types of costs which a company considers while fixing the price. They are – fixed cost, semi variable cost and variable cost. Fixed cost is the one which do not change with the number of products produced or manufactured.
What is semi variable cost?
Semi variable cost is the mixture of fixed and variable factors. It is fixed for certain levels and will start varying after that level is crossed. For example: an employee may be given fixed amount of salary but the bonus will vary according to the targets he achieves.
How to get increased market share?
The market share can be obtained by the organization for their product or service by setting a price at low levels so that it becomes affordable for larger amount of audience. While, surviving in the competitive market means that company needs to face this intense cut throat competition of the market and introduce the products which people like and think are worth buying. But along with a good product or service, promotional schemes such as discounts, extra products coupons are also important. Another important objective can be to attain a quality of the product leadership. In this case the price is set high so to cover the large amount of cost of production and research and development. This will have limited market share but will have loyalty of the customers.
Why does the government need to fix the price limit?
Government and legal regulations. Many a times, to protect the interest of the consumers, the government needs to intervene in fixing the price limit. There are certain products which can be considered essential and their price should be as low as possible so that the consumers can buy them.
What should the buyer be ready to pay?
The buyer should be ready to pay the amount of price which the company has fixed. The rational buyer would always try to bargain a lower the price and a seller would try to cover the cost and add some profit. And to manage these two elements, the price should be according to interest of both the parties.
Which factor influences the price of a product?
Government inference in the form of taxes and fixation of the price is also an important factor which influences the pricing of a product considerably.
What factors affect the pricing decision of a product?
Besides the above, there is also the number of factors which affect the pricing decision of a product, such as 1. Product differentiation 2. Social and ethical consideration, 3. Product’s stage in the life cycle etc.
Why is buying patterns important?
If the Purchase frequency of the product is higher, lower prices may be fixed to have a lower profit per unit resulting in higher sales along with higher lower overall total profits.
What is the role of government in pricing?
Government Policy. Government inference in the form of taxes and fixation of the price is also an important factor which influences the pricing of a product considerably. Government not only levies various types of taxes such as exercise duty, sales tax, etc. But also fixes the maximum selling price of a product.
What is price policy?
Price policies provide the guidelines within which pricing strategy is formulated and implements of product.
What influences the pricing decision of a company?
The market position of the company or the image of the company in minds of consumers as to Goodwill for the quality product etc may also influence the pricing decision of the company, such as Tata, Godrej, Apple, Google, Samsung, etc.
What is pricing objective?
The pricing objectives describe the company’s goal in relation to pricing.
What is the most important factor in determining the price of a product?
Demand is the single most important factor affecting price of product and pricing policies. Demand creation or demand management is the prime task of marketing management. So, price is set at a level at which there is the desired impact on the product demand . Company must set price according to purchase capacity of its buyers.
What are the factors that affect the price of a product?
Costs and profits are two dominant factors having direct impact on selling price. Here, costs include product development costs , production costs , and marketing costs . It is very simple that costs and price have direct positive correlation. However, production and marketing costs are more important in determining price.
How does price affect pricing decisions?
The price of raw materials and other inputs affect pricing decisions. Change in price of needed inputs has direct positive effect on the price of finished product. For example, if price of raw materials increases, company has to raise its selling price to offset increased costs.
Why is it important to consider buyer behaviour when taking pricing decisions?
Consumer behaviour includes the study of social, cultural, personal, and economic factors related to consumers. The key characteristics of consumers provide a clue to set an appropriate price for the product.
Why is product differentiation important?
Product differentiation is an important guideline in pricing decisions. Product differentiation can be defined as the degree to which company’s product is perceived different as against the products offered by the close competitors, or to what extent the product is superior to that of competitors’ in terms of competitive advantages. The theory is, the higher the product differentiation, the more will be freedom to set the price, and the higher the price will be.
What are internal factors?
Internal factors are internal to organization and, hence, are controllable. These factors play vital role in pricing decisions. They are also known as organizational factors. Manager, who is responsible to set price and formulae pricing policies and strategies, is required to know adequately about these factors.
How does quality affect price?
Quality affects price level. Mostly, a high-quality-product is sold at a high price and vice versa. Customers are also ready to pay high price for a quality product.
What are the factors that affect the final price of a product?
A marketer in the course of setting a product or service’s final price is affected by such as internal, external factors – objectives, cost, supply, demand, government regulation, and so forth.
How does a supplier affect the price of a product?
Supplier’s Characteristics: Suppliers also affect the price of the product since the price charged by suppliers on their raw materials has a direct effect. If the supplier’s raw materials price is high, the price of the product definitely will be high, and if the raw materials price is low, the price of the product may become cheaper.
How many pricing objectives are there?
Since the pricing objectives are mainly of three, a well-defined firm’s pricing objectives depend upon the expectations. It is,
What is decentralized pricing?
In the case of decentralized pricing policy, mainly the pricing process is carried out by lower-level management, overall by all, and such prices are changed frequently depending upon the individuals within the industry.
How does the nature of the product affect the selection of price limits?
For example, the luxurious and service-oriented products, the profit margin will be adequately high and for less essential items and less expensive products, the profit margin will be comparatively low.
What happens if a firm adopts a sales oriented objective?
If the firm adopts a sales-oriented objective, the price level will be a little lower.
Why do firms use expensive distribution networks?
However, sometimes firms use expensive distribution networks to build up their image in the market although there are cheaper distribution networks. As such it may increase the cost of the product and thus affect the consumer price.
What factors should be considered when determining the price of a product?
2. Consumers: The marketer should consider various consumer factors while fixing the prices. The consumer factors that must be considered includes the price sensitivity of the buyer, purchasing power, and so on. 3. Government control: Government rules and regulation must be considered while fixing the prices.
What are the internal factors of a product?
A. Internal Factors: 1. Cost: While fixing the prices of a product, the firm should consider the cost involved in producing the product. This cost includes both the variable and fixed costs. Thus, while fixing the prices, the firm must be able to recover both the variable and fixed costs. 2.
What is the product life cycle?
Product life cycle: The stage at which the product is in its product life cycle also affects its price. For instance, during the introductory stage the firm may charge lower price to attract the customers, and during the growth stage, a firm may increase the price. 5. Credit period offered:
Why do marketers reduce prices?
At the time of recession, the consumer may have less money to spend, so the marketer may reduce the prices in order to influence the buying decision of the consumers.
Product Cost
Cost of a product or service is one of the most important factors which affect the price of the product or service. Whenever a firm is fixing price of their product or service they need to consider the amount that they have invested in its production or procurement. Every organization wants to cover the cost of the product or servi…
The Utility and Demand
- The cost of the product helps the producer to fix the lower limit of the price. The demand of the product will help in fixing the higher limit of the price. The higher limit of the price means that the price cannot exceed the demand of the product. The buyer should be ready to pay the amount of price which the company has fixed. The rational buyer would always try to bargain a lower the pr…
Extent of Competition in The Market
- There are various external factors which affect the price of the firm and among those the extent of competition is one very important factor. The product and the features of the product must be carefully analysed. The reaction of the competitors should also be evaluated. A firm can fix a price which is either lower than the competitor’s price to gain more market share. They can set the sa…
Government and Legal Regulations
- Many a times, to protect the interest of the consumers, the government needs to intervene in fixing the price limit. There are certain products which can be considered essential and their price should be as low as possible so that the consumers can buy them. For example:there are certain medicines which are very necessary and the producers may not consider its necessity and fix a …
Pricing Objectives
- Depending on the organizational objective the price may be fixed. There can be two types of objectives, such as, getting increased market share for the product or survive in this competitive market. The market share can be obtained by the organization for their product or service by setting a price at low levels so that it becomes affordable for larger amount of audience. While, …
Marketing Methods Used
- Other element in the marketing mix such as branding, packaging, channel of distribution used, the promotional schemes used etc. will also affect the price of the product. Along with the elements mentioned above, uniqueness of the product is also an element which gives a organization a leverage to fix a little higher price. For example: if a mobile phone that comes with a new and uni…
BST Chapter 11 – Marketing
Objectives
Costs
Elasticity of Demand
Competition
Distribution Channels
Buying Pattern of The Consumer
Economic Environment
Market Position of The Company
Government Policy
Miscellaneous Factors
- Besides the above, there is also the number of factors which affect the pricing decision of a product, such as 1. Product differentiation 2. Social and ethical consideration, 3. Product’s stage in the life cycle etc. Thus, now know the Factors Affecting Pricing of Product.
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