Factors Affecting Pricing Decision Class 12
Factors affecting pricing can be classified into Internal Factors i.e. within the control of marketer and External Factors i.e. which are related to outside the company of the marketer.
A. Internal Factors Affecting Pricing
Internal factors are within the firm's control and can be adjusted as needed.
- Objectives of the Firm:
Different goals like maximizing revenue, profit, market share, or customer satisfaction, influence pricing strategies.
- Role of Top Management:
Top management usually sets prices, with marketing managers assisting to ensure alignment with overall policies.
- Cost of the Product:
Higher production and material costs lead to higher product prices and vice versa.
- Product Differentiation:
Products with more features and higher specifications generally have higher prices.
- Marketing Mix:
Price must coordinate with product, place, and promotion elements. High-priced products fit better in premium retail locations with extensive advertising.
- Size of the Organization:
Larger firms with higher production volumes can afford lower prices, while smaller firms may set higher prices.
- Location of the Organization:
Prices may vary based on whether the market is rural or urban. Smaller packages and lower prices are common in rural areas.
- Nature of Goods:
Necessity goods might be priced moderately for social welfare, while luxury goods command higher prices.
- Promotional Programs:
Extensive advertising and promotion efforts typically lead to higher product prices.
Factors Affecting Pricing Decision Class 12
B. External Factors affecting Pricing
External factors are beyond the firm's control and must be adapted to.
- Demand:
High demand can support higher prices. For elastic demand, lower prices may capture more market share.
- Buyers' Behavior:
Loyal buyers or prestige-related products might justify higher prices.
- Competition:
In competitive markets, prices need to be attractive to stand out. So, more competition will lead to low prices.
- Raw Material or Input Suppliers:
Costs from suppliers affect final product pricing. If input costs are high, prices may increase unless the firm absorbs the costs.
- Prevalent Economic Conditions:
During economic booms, prices can be higher. In economic slumps, lower prices may be necessary to maintain sales.
- Government Regulations:
Regulatory policies can either restrict high pricing or promote healthy competition, impacting pricing strategies.
These factors collectively influence how firms set their product prices to achieve their business objectives.