This implies that when the firm makes a decision about the price, it has to consider its entire marketing efforts. A manager should keep in mind the macro picture of economy while setting price for the product. Pricing on the basis of cost is not a relatively simple procedure, especially in the absence of information on what customer might be willing to pay but suggest fairness and reasonableness. For example, the sports club may charge a concessional price for senior citizens and higher prices from others. Key Takeaway In addition to setting a pricing objective, a firm has to look at a number of factors before setting its prices. Moreover, the buyer is ready to pay up to that point where he perceives utility from product to be at least equal to price paid. Distribution channel members also exert pressure on prices by demanding higher margins.
Supplier: they are very important factors to make price decision of products, because costs of product depends mainly on price of raw materials. If the price, in the short run, is lower than the cost, the question arises, whether this price covers the variable cost. Competition : A marketer has to work in a competitive situation. Where customers demand economic justifications of prices, the inability to produce cost arguments may mean that high price cannot be charged. Type of market Companies' pricing strategies vary with different types of market. There many ways to deal with such an issue.
If the demand for the product is inelastic, the firm can fix a high price. The price rigidity is the practice of many producers. It is only then, it can achieve growth. All the other factors determine in what position within that range price is set. Recall from the five forces model discussed in that merchants must look at substitutes and potential entrants as well as direct competitors.
Similarly, the demand for a product may change if the price changes. But once convinced that they are being affected adversely, swift retaliation should be expected. When a company spends heavily on advertising, sales promotion, personal selling and publicity, the selling costs will go up, and consequently, price of the product will be high. 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. The aim of this study was to identify the factors that influence the pricing decisions in determining the price level of building materials in Ghana.
Marketer should analyze consumer behaviour to set effective pricing policies. So, marketer takes decision as per demand. Findings suggest that differential role behaviour varies according to religious influences. The entry of competitors in hordes puts tremendous pressure on price and the pioneer company is forced to reduce its price. They start believing that adequate quality can be provided at lower prices. Price strongly influences quality perceptions of such products. By requiring sellers to keep a minimum price level for similar products, protect smaller businesses.
With each innovation, it estimates the highest price it can charge given the comparative benefits of its new product versus the available substitutes. Internal factors include the company's marketing objectives, marketing mix strategy, costs, and organization. The channels of Distribution, location of warehousing and the transportation involved also influence the price determination. Pricing strategy has played an important role in consumer purchasing behavior and decision making process Richard, 1985; Myers, 1997. Factors that impact pricing decisions include internal factors like the marketing objectives for the organization, and external factors such as the nature of the market, competition and demand. There are a perfect knowledge of market condition and the price which no individual firm has any influence on the market price.
They then discuss implications for management and further research. For example, if price of raw materials increases, company has to raise its selling price to offset increased costs. You have probably noticed that restaurants offer senior citizens and children discounted menus. If a company plans to sell its products or services in international markets, research on the factors for each market must be analyzed before setting prices. For example, the company may charge high price for high-quality product. The company has to take care while defining competition. The formula for calculating the price elasticity of demand is as follows.
Price can be used to convey this differential advantage and to appeal to a certain market segment. It is very simple that costs and price have direct positive correlation. Generally, product quality, product image, customer service and promotion activity influence many consumers more than the price. Using a sample of 283 exporter—importer relationships, we uncover the export price manipulations used to cope with internal competition, and we examine their impact on the exporter economic performance. A single business is not affected by the marketing strategies of its competitors because there are many competitors in the market.
If the cost structure of the company allows, it should stay in business at the low price. Elasticity refers to the amount of stretch or change. When a company is charged with price fixing, it is usually ordered to take some type of action to reach a settlement with buyers. Following are the two main factors affecting pricing decisions. Often the government prefers to control the prices of essential commodities with a view to prevent the exploitation of the consumers. Similarly, no seller can charge a lower price because he can sell all his offered quantity to a lot of customers on the market. By adopting a suitable price policy the firm can restrict the entry of rivals.
What is the demand level for the product at different prices? Consumer product companies have to send cues to the customers about the high quality and the superiority of the product. There are various factors that has its influence in pricing decisions of a company either directly or indirectly as discussed below. But pricing decision remains a patchwork of ad hoc decisions. There has been a remarkable change in the nature of services offered by the banks. Seasonal Effect : Certain products have seasonal demand. Cost is one of the major considerations in price determination of the product. Relative market share can be calculated with reference to close competitors.