Accordingly, the price policies and strategies are formulated and the price of a product is determined. Level of market demand We pay for house rent, we pay for taxi, if need a laptop we must pay to buy it. Report a Violation, Internal Factors that Influences the Pricing Strategy of a Firm, Product Pricing: Objectives, Basis and Factors, Brand Positioning: Meaning and Positioning Strategies. 18 Reasons and the Importance of Product Innovation (Explained), 14 Essential Features and the Importance of Product (Explained), 15 Factors that Affecting Market Segmentation, 7 Simple Tactics for Writing Powerful Advertising Copy, 19 Factors Influencing Entrepreneurship Development, 13 Role and Functions of Organizational Culture, 8 Key Importance of Change in an Organization, Top 25 Major Reasons Why People Resist Change, 10 Techniques of Building Support for Organizational Change, 9 Methods of Measuring Employee Morale in Organization. Therefore, before deciding the price the marketer has to keep in mind the factors affecting the price. eval(ez_write_tag([[250,250],'googlesir_com-leader-3','ezslot_11',124,'0','0']));If due and attention are not given on the factor, it might happen that the price of a product may become so high that the consumer might reject it. 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. The relative market shares (or market strength) of competitors influences whether a business can set prices independently, or whether it has to follow the lead shown by competitors The common pricing objectives of a company are given ahead: eval(ez_write_tag([[250,250],'googlesir_com-medrectangle-4','ezslot_1',101,'0','0']));eval(ez_write_tag([[250,250],'googlesir_com-medrectangle-4','ezslot_2',101,'0','1']));The pricing objectives of the company to plan price strategies. Factors Affecting Pricing Decisions. The reason is that the price is a very sensitive issue for the customers in their purchasing behavior. Enter your email below to get access to Our All helpful Tips and Articles. While fixing the price of the product, the firm needs to study the degree of competition in the market. TOS 7. Discover the world's research. The pricing objectives describe the company’s goal in relation to pricing. Pricing isn’t always as easy as setting a price the seller hopes to obtain. Disclaimer 9. The pricing of the product is also affected by the credit period offered by the company. It involves aspects such as demand and supply, cost of the product, its perception and value for the customer an… In the boom period, high prices may be fixed so as to cover the increasing cost of production. Factors Affecting Pricing Decisions – 2 Important Factors: Internal Factors and External Factors. There are certain internal factors like organizational policies, differentiation in services, cost or service and marketing mix that affects pricing decision a lot. Internal Factors: 1. Shipping physical items to stores is included in computer software pricing. If there is high competition, the prices may be kept low to effectively face the competition, and if competition is low, the prices may be kept high. Factors affecting pricing decisions Managerial decisions relating to product pricing at HP can have dramatic impact on performance. Whether it’s a home appraisal, a comparative market analysis done by an agent, or an Opendoor evaluation, most real estate experts will rely on comps to estimate your home value. There are number of factors affecting the pricing decisions and price is not determined simply, there are many factors affecting pricing decisions. Longer the credit period, higher may be the price, and shorter the credit period, lower may be the price of the product. After adding necessary profits with the cost of production, it would give the price at which the products would be sold.eval(ez_write_tag([[300,250],'googlesir_com-box-4','ezslot_7',120,'0','0'])); However, the main defect of the system is that it disregards the external factors particularly the demand and the value placed on goods by the ultimate consumer. Costs that vary based on sales volume or changes in business needs. In case the company charges higher prices as compared to the prices fixed by the government then the legal action may be initiated. 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. The promotional activity undertaken by the firm also determines the price. The 4-C framework in pricing suggest that pricing is determined by (C)ustomers Willingness-to-pay, (C)osts, (Competition), and (C)apacity. 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. This action still wasn't enough to convince traders that supply wouldn't outpace demand, and the price of oil continued downhill. These include income and population, the cost of production and technology plus the actions of governments and producer organisations. Technomic conference panelists share consumer trends that can influence decisions on menu pricing at restaurants. Your Costs. Product’s stage in the life cycle etc. These may be grouped under the following. First one deals with management area of framing a pricing policy and second one deal with fixation of price. Today’s lesson looks at the factors that affect commodity prices in more detail. As for internal factors are concerned, please refer to this article: Internal factors affecting pricing decision to know a list of factors affecting pricing decisions. Product differentiation 2. Copyright 10. The pricing of the product is also affected by the credit period offered by the company. 19 Factors Influencing Entrepreneurship Development. Not only this but sometimes the government also starts selling certain products through fair shops, such as sugar, cloth, etc. We would like to divide them as Internal Factors and External Factors. On the contrary, low-frequency products are sold at high margin profit and, therefore, at high prices, such as TV, Refrigerator, air conditioners, cars, etc. This … Related: 15 Factors that Affecting Market Segmentation. Be sure to combine this with your demand curve data, i.e., keep in mind that changing your price will change your sales forecast. The next important factor affecting the price for a product is the nature and degree of competition in the market. When the economy is weak and many people are unemployed, companies often lower their prices. Environmental Factors. Part guesswork, part experience, part number crunching - how ever you look at it, determining your price is a difficult task. Internal Factors: […] The factors affecting pricing decisions are varied and multiple. But also fixes the maximum selling price of a product. After adding necessary profits with the cost of production, it would give the price at which the products would be sold. They are discussed briefly below. For example, pricing a hotel room in low season is very different than in prime season. Thus, now know the Factors Affecting Pricing of Product.eval(ez_write_tag([[300,250],'googlesir_com-large-mobile-banner-1','ezslot_4',111,'0','0'])); Your email address will not be published. Prohibited Content 3. 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. Critically discuss the factors that HP should consider when making pricing decisions. 5. The possible range of prices also gets affected because of legal and ethical constraints. 3. 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. What price do you need to be at in order to achieve your desired profitability based on your sales projections? Fixed Costs Variable Costs Costs that remain constant over a period of time regardless of sales volume. The market demand for a product or service obviously has a big impact on pricing. The consumer factors that must be considered includes the price sensitivity of the buyer, purchasing power, and so on. Product pricing decisions are made with the view to maximise company profit in the long run. Your email address will not be published. There are several factors a business needs to consider in setting a price: Competitors – a huge impact on pricing decisions. Factors affecting pricing 1. The fourth C, capacity, is especially important in service businesses with high fixed costs and fluctuating demand. Factors affecting Price of a Product The pricing decisions for a product are affected by internal and external factors. If the management has control over the factors, it will come under internal factors, if not it will come under external factors. When the stock price goes up, … ADVERTISEMENTS: Price is the only element of marketing mix that helps in generating income. While fixing the prices of the product, the marketer should consider the objectives of the firm. Pricing – Factors affecting Price of a Product or Service Topic Covered in this page Price means the amount of money which is exchanged in order to get the product or service. Government not only levies various types of taxes such as exercise duty, sales tax, etc. The price of the product may also be determined on the basis of the image of the firm in the market. By April 20, 2020, the price for a barrel of oil in the U.S. had fallen to -$36.98. The economic environment of the country is an important factor affecting the pricing of a commodity. Almost all consumer items of daily use have high purchase frequency, such as Oils, soaps, clothes, food items, etc. The amount charged to customers in exchange for goods and services. The pricing decisions for a product are affected by internal and external factors. Content Guidelines 2. External Factors Affecting Pricing Decision. Therefore, a marketer should adopt a well-planned approach for pricing decisions. eval(ez_write_tag([[336,280],'googlesir_com-medrectangle-3','ezslot_3',105,'0','0']));The company fixes the price of a product on the basis of its pricing objectives which are framed within the framework of Corporate objectives. The management also does the analysis for giving appropriate margins to the distributors. Price policies provide the guidelines within which pricing strategy is formulated and implements of product. Since demand is affected by factors like, number and size of competitors, the prospective buyers, their capacity and willingness to pay, their preference etc. Cost: While fixing the prices of a product, the firm should consider the cost involved in producing the product. Pricing objectives are the overall goal that describes the role of price in the organization long-range plans. Factors affecting pricing policy are divided into two parts: What is price? The main internal factors that influence the price decisions are: marketing objectives, marketing strategy and costs – each of these factors will be discussed below. Buying the pattern of the consumer also plays an important role in the pricing of the product. Who determine the price structure of a product, top management, CEO, the entrepreneur, answer is no. For instance, HUL and Procter & Gamble can demand a higher price for their brands, as they enjoy goodwill in the market. The pricing of a product has two facets, they are polity and setting. Pricing is all around us. Individual developers can often afford to offer free or advertising-supported applications. Before publishing your articles on this site, please read the following pages: 1. The marketer must consider a number of channel intermediaries and their expectations. Almost all consumer items of daily use have high purchase frequency, such as Oils, soaps, clothes, food items, etc. A price is a value in monetaryterms that one party pays to another in a transaction in exchange for some goods or services. Price is an important factor of marketing mix because it is the factor which affects revenue and profits of the firm. There are a number of factors that might influence price or Factors Affecting Pricing of Product. On the contrary, in the recession period, prices are reduced considerably is so as to maintain the level of turnover of the product. eval(ez_write_tag([[468,60],'googlesir_com-large-mobile-banner-2','ezslot_5',123,'0','0']));Related: 14 Essential Features and the Importance of Product (Explained). The marketer should know the factors that influence the pricing decisions before setting the price of a product. There is a close relationship between the demand and the price If the demand increases the price of the product will also increase. Distribution channels also affect the price of the product. Content Filtrations 6. Government rules and regulation must be considered while fixing the prices. Maintain loyalty of middleman and get their sales support. A firm also has to look at a myriad of other factors before setting its prices. This paper examines factors that affect pricing decision for export markets, and sheds light on international pricing strategies in a global competitive market. On the contrary, if the demand decreases the price of the product will also decrease.eval(ez_write_tag([[250,250],'googlesir_com-leader-2','ezslot_8',107,'0','0']));eval(ez_write_tag([[250,250],'googlesir_com-leader-2','ezslot_9',107,'0','1'])); Hence the company should keep the elasticity of the demand factor in mind while fixing the price of a product. Basically, the prices of products and services are determined by the interplay of five factors, viz., demand and supply conditions, production and associated costs, competition, buyer’s bargaining power and the perceived value. are taken into account while fixing the price. On April 12, 2020, OPEC and Russia agreed to lower output to support prices. In certain products, government may announce administered prices, and therefore the marketer has to consider such regulation while fixing the prices. Some of the external factors that affect pricing decision of the company/business are as follows; Demand in the Market. The marketer may also have to consider the economic condition prevailing in the market while fixing the prices. One of the best indicators of your home’s value is the sale prices of similar homes in your neighborhood that have sold recently. Another factor that influences pricing is competitive. This compensation must be included in the ultimate price which the consumer is required to pay. Updated on: April 7, 2020 Leave a Comment. So the definition of price is the amount of money the buyer will pay as consideration to the seller in exchange for goods or services. This cost includes both the variable and fixed costs. 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. A long range of distribution channels exists between the manufacturer and the ultimate consumer. In short, businessmen when setting the price of goods consider various factors like consumer demand, competition, political consequences, legal aspects and even ethical aspects of pricing. Plagiarism Prevention 4. Related: 18 Reasons and the Importance of Product Innovation (Explained). Social and ethical consideration, 3. Pricing decision of an organization is affected by various internal and external factors. 5 factors that affect restaurant pricing strategies. If your rate doesn't include … The organizational objectives are attained through pricing policy. The pricing objectives of the company to plan price strategies. Having a pricing objective isn’t enough. Each of them has to be compensated for the services rendered by him. While fixing the prices of a product, the firm should consider the cost involved in producing the product. Here are nine factors to take into consideration when pricing your services. The stage at which the product is in its product life cycle also affects its price. The problem is that no two comps are the same so you’ll need to make adju… In the past, the price fixing was a simple affair, just add all the costs incurred and divide the final figure by the number of units produced. Thus, while fixing the prices, the firm must be able to recover both the variable and fixed costs. The marketer should consider various consumer factors while fixing the prices. ADVERTISEMENTS: Figure-2 shows the factors that affect the pricing decisions: Now, let […] If the firm incurs heavy advertising and sales promotion costs, then the pricing of the product shall be kept high in order to recover the cost. Even in monopolistic conditions, the manufacturer or the producer will have to consider the competition with that of substitute products before fixing the price of his own product. Development costs are another important factor affecting computer software prices. Electricity prices generally reflect the cost to build, finance, maintain, and operate power plants and the electricity grid (the complex system of power transmission and distribution lines).Some for-profit utilities also include a financial return for owners and shareholders in their electricity prices. A firm can fix any price for its product if the degree of competition is low. Required fields are marked *. No manufacturer or the producer is to fix his price without considering competition unless he has a Monopoly. The company can fix the price of his product equal to or lower than that of the competitor’s price provided the quality of the product, is in no way, lower than that of the competitors. Not only this but sometimes the government also starts selling certain products through fair shops, such as sugar, cloth, etc. Notify me of follow-up comments by email. If due and attention are not given on the factor, it might happen that the price of a product may become so high that the consumer might reject it. Besides the above, there is also the number of factors which affect the pricing decision of a product, such as 1. The economy also has a tremendous effect on pricing decisions. Related: 7 Simple Tactics for Writing Powerful Advertising Copy. Factors Affecting Pricing Policy – 2 Major Factors: Internal and External Factors . Over the long term the underlying fundamentals (demand and supply) play a prominent role. Many factors influence electricity prices. The company fixes the price of a product on the basis of its pricing objectives which are framed within the framework of Corporate objectives.
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