what are the ifferent factors affecting the pricing decision
Answers
Internal factors:-
1. Organisational Factors:
Over-all price strategy is dealt with by top executives. They determine the basic ranges that the product falls into in terms of market segments. The actual mechanics of pricing are dealt with at lower levels in the firm and focus on individual product strategies. Usually, some combination of production and marketing specialists are involved in choosing the price.
2. Marketing Mix:
Marketing experts view price as only one of the many important elements of the marketing mix. Firms may raise prices as a deliberate strategy to build a high-prestige product line. In either case, the effort will not succeed unless the price change is combined with a total marketing strategy that supports it. A firm that raises its prices may add a more impressive looking package and may begin a new advertising campaign.
3. Product Differentiation:
The price of the product also depends upon the characteristics of the product. In order to attract the customers, different characteristics are added to the product, such as quality, size, colour, attractive package, alternative uses etc. Generally, customers pay more prices for the product which is of the new style, fashion, better package etc.
4. Cost of the Product:
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 may try to decide what prices are realistic, considering current demand and competition in the market. The product ultimately goes to the public and their capacity to pay will fix the cost, otherwise product would be flapped in the market.
5. Objectives of the Firm:
A firm may have various objectives and pricing contributes its share in achieving such goals. Firms may pursue a variety of value-oriented objectives, such as maximizing sales revenue, maximizing market share, maximizing customer volume, minimizing customer volume, maintaining an image, maintaining stable price etc. Pricing policy should be established only after proper considerations of the objectives of the firm.
External factors:-
1. Demand:
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.
2. Competition:
Competitive conditions affect the pricing decisions. Competition is a crucial factor in price determination. A firm can fix the price equal to or lower than that of the competitors, provided the quality of product, in no case, be lower than that of the competitors.
3. Suppliers:
Suppliers of raw materials and other goods can have a significant effect on the price of a product. If the price of cotton goes up, the increase is passed on by suppliers to manufacturers. Manufacturers, in turn, pass it on to the customers.
4. Economic Conditions:
The inflationary or deflationary tendency affects pricing. In recession period, the prices are reduced to a sizeable extent to maintain the level of turnover. On the other hand, the prices are increased in boom period to cover the increasing cost of production and distribution. To meet the changes in demand, price etc.
Several pricing decisions are available:
(a) Prices can be boosted to protect profits against rising cost,
(b) Price protection systems can be developed to link the price on delivery to current costs,
(c) Emphasis can be shifted from sales volume to profit margin and cost reduction etc.
5. Buyers:
The various consumers and businesses that buy a company’s products or services may have an influence in the pricing decision. Their nature and behaviour for the purchase of a particular product, brand or service etc. affect pricing when their number is large.
6. Government:
Price discretion is also affected by the price-control by the government through enactment of legislation, when it is thought proper to arrest the inflationary trend in prices of certain products. The prices cannot be fixed higher, as government keeps a close watch on pricing in the private sector. The marketers obviously can exercise substantial control over the internal factors, while they have little, if any, control over the external ones.
Answer:
The different factors affecting the pricing decision are as follows-
Internal factors-
1. Company Objectives:
This has a considerable effect on the pricing decisions of a company. Pricing policies and strategies must conform with the firm's pricing objectives.
2. Organisation Structure:
Another factor affecting pricing decisions is the firm's organizational structure. Generally, the top management has full authority to frame pricing objectives and policies.
3. Marketing Mix:
The four p's of a marketing mix are Price, product, promotion, and place. The pricing policy of a firm must give importance to the other components of a marketing mix because these factors are closely related.
4. Product differentiation-
If a product is different from its competitive products, with features such as a new style, design, package, etc., it can fetch a higher price in the market.
5. Cost of the Product:
Pricing decisions are based on the cost of production of a product. If a product price is less than the cost of production, the company has to suffer from the loss.
External factors-
1. Demand:
Market demand for a product or service has a tremendous impact on pricing. If there is no demand for the production of the market, the product cannot be sold. The pricing decision can utilize this trend if the product enjoys a good direction.
2. Competition:
There has been a revolutionary change experienced in the Indian market economy after the liberalization and opening up of the economy. The impact of competition is more marked than in the earlier days.
3. Buyers:
If there is no demand for the product in the market, it is said to have failed in the market. Pricing decision is thus related to the buyers' characters, nature, and preferences.
4. Suppliers:
The suppliers required items of production from the firm. As it already pointed out that, the firm can reduce the price if it can reduce the cost of production.
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