Factors that influence price setting. The Factors Involved in Setting International Prices 2022-12-16

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Price setting is the process of determining the price at which a product or service will be offered for sale. There are a number of factors that can influence the price of a product or service, including the cost of production, market demand, competition, and the perceived value of the product or service.

One of the most significant factors that can influence price setting is the cost of production. The cost of production includes all of the expenses that go into creating a product or service, including labor, materials, and overhead costs such as rent and utilities. If the cost of production is high, the price of the product or service will need to be higher in order to cover these costs and still turn a profit. On the other hand, if the cost of production is low, the price can be set lower in order to be more competitive in the market.

Market demand is another factor that can influence price setting. If there is high demand for a product or service, the price can be set higher because there are more people willing to pay for it. On the other hand, if there is low demand, the price may need to be set lower in order to attract buyers. The perceived value of a product or service can also influence demand, as people may be willing to pay more for a product or service that they perceive as being of high quality or offering unique benefits.

Competition is also a factor that can influence price setting. If there are many competitors offering similar products or services, the price may need to be set lower in order to be more competitive. On the other hand, if there is little competition, the price can be set higher because there are fewer options for the consumer.

In addition to these factors, there are also external factors such as economic conditions, government regulations, and market trends that can influence price setting. Economic conditions, such as inflation or recession, can affect the price of goods and services, as can government regulations and taxes. Market trends can also influence price setting, as companies may adjust their prices based on the current demand for their products or services.

Overall, the price of a product or service is determined by a combination of factors, including the cost of production, market demand, competition, and external factors such as economic conditions and government regulations. By considering these factors, companies can set prices that are fair and competitive in the market, while still turning a profit.

Internal factors influencing price

factors that influence price setting

Who is Your Client Your price will often vary for different clients. While other companies increase the prices as a part of their marketing strategy. In such circumstances, reducing price will have very little impact on the level of sales, unless that price reduction is very substantial. The purpose is to check the results that how the market is behaving at different pricing strategies. Lately, Farmer Joe has noticed that sales are decreasing while his own costs have increased.

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Pricing: Introduction, Determining Factors, Concepts and Solved Questions

factors that influence price setting

Marketing managers can fight inflation by eliminating products with low margins, using delay quotation pricing or escalator pricing and adding new fees. 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. And, for the differentiated products, usually, consumers do not compare prices, because they know the attributes used in such products are unique. Management Science 56 3 : 399—413. There are two aspects of costs to consider, namely the variable costs of the product itself and the fixed costs of the firm that need to be recouped through the margins of individual products. This general principle probably holds for most markets; however, there are always instances of higher prices leading to higher demand. An individual consumer has little bargaining power over a supermarket though they can take their custom elsewhere.

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10 Major Factors Affecting Pricing of Product (Explained)

factors that influence price setting

The Overall Objective of the Company A company may have various objectives. A company reduces its price to gain market share. Equally important is how much buyers are willing to pay for the offering. If a company decides to offer high quality products, the price should be high to provide for additional design expenditure. In certain cases if it is found that the products cannot be sold at a price above the cost, the manufacturer should reduce the cost of production but he cannot sell at a price of his own liking. The primary internal pricing factors include, Pricing Objectives The price of the product is affected by the pricing objectives of the business firm.

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The Factors Involved in Setting International Prices

factors that influence price setting

They consider how the product would play out in the market. It launches a low price fighter brand to compete with low price competitor brands. Journal of Consumer Psychology 13 2 : 113—123. It is important that the company anticipates the discounts that it will have to grant to gain and retain business and adjust its list price accordingly. If a small drop in the price brings about a great increase in the demand, there is a high degree of elasticity and vice-versa.

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Factors that Influence Pricing

factors that influence price setting

Objectives Pricing objectives are the overall goal that describes the role of price in the organization long-range plans. But if the pioneer had been satisfied with lesser profits, the competitors would have kept away for a longer time, and it would have got sufficient time to consolidate its position. The upper limit of the price range will depend on the utility the product has and hence its demand in the market. Econometrica 50 6 : 1089—1122. If a firm does not react to changes in the economy, the end result could be the dissolution of the company due to decreasing profits and sales.


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What are the key factors that influence price setting?

factors that influence price setting

If the firm has its distributing network, the distribution system may become cheaper and more efficient. Environmental Factors : A final set of influences on pricing can be generally grouped under the heading of environmental factors. New firms may enter the market when they feel that there are substantial profits to be made. One of the most famous price-fixing schemes involved Robert Crandall, the CEO of American Airlines in the early 1990s. So what factors do you need to consider when pricing your products and services? Internal Factors: Internal factors are those factors that are within the control of the firm. ADVERTISEMENTS: If a product is priced higher, the instinctive judgment of the customer is that the quality of the product must be higher, unless he can objectively justify otherwise.

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Internal and External Factors Affect Pricing Decision

factors that influence price setting

If you wanted to purchase his wedding cakes, he would first charge a fee for a consultation, then for a trial cake and finally for the final product. Journal of Consumer Research 16 1 : 55—66. Demand is affected by factors like, number and size of competitors, buying capability and willingness of prospective buyers, their preferences etc. Distributors make profits on the basis of volumes and margins, and are often willing to accept low margins for high-volume items and will require high margins for low-volume items. Therefore, the company has to consider the local laws of the government as well. Some consideration must be given to the basic principle of a negative relationship between price and quantity because revenue depends not just on price but on quantity sold.


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4 Factors that Influence the Price Your Customers Will Pay

factors that influence price setting

Another factor to consider when determining the price is the elasticity of demand. This is where the concepts of Price Elasticity and Law of Demand come in. On the other hand, if you discover that for a comparable quality product or service, your competitors are charging way less than you are, then the tables could be turned, and your competitor could steal customers away from you. Thus, for example, the recent advertising campaign for Stella Artois lager uses the idea that the lager is expensive to reassure the customer that it is of a high quality. The following are the internal factors influencing pricing: i. Just think about the Verizon Wireless commercials.

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Pricing

factors that influence price setting

Conclusion We have studied how some internal and external factors affect pricing decision of the company. 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. Such discounts are pervasive in business markets, and take the form of order-size discounts, competitive discounts, fast payment discounts, annual volume bonus and promotions allowance. 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. Marketing Mix The price of the product or service is also affected by the other elements of Just think, though the price of the product is low while promoting and distributing, its overall costs go on increasing. Higher the production, higher the cost and vice versa.

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Marketing: Factors to Consider When Setting Prices (GCSE)

factors that influence price setting

Furthermore, the complexity of the pricing decision can be compounded by the degree of uncertainty that exists in relation to the marketing environment in general, and consumers, competitors and distributors in particular. No seller can ignore the cost of production for pricing in the long run. Do they have any bargaining power over the price set? Your Service What you provide for your clients will also make a big difference to your price tag. The retailers then sell the DVDs to consumers for an additional charge. ADVERTISEMENTS: Competitors who have similar ambitions to increase their market share and have deep pockets will swiftly reduce price if any one of them reduces prices. What do you think? All other elements hold equal importance to the success of marketing strategies of the firm. Journal of Retailing 78 3 : 193—205.

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