Pricing decisions are an essential aspect of any business, as they determine the amount of money a company will charge for its products or services. These decisions can have significant implications for a company's profits and competitiveness, and therefore require careful consideration and analysis. There are several factors that can affect pricing decisions, including cost of production, competition, target market, and marketing strategies.
One of the most significant factors that can affect pricing decisions is the cost of production. This includes the cost of raw materials, labor, and other expenses that are incurred in the production process. Companies must consider these costs when determining the price of their products, as they need to ensure that they are able to cover their expenses and still make a profit. If the cost of production is too high, it may be necessary to increase the price of the product to cover these costs. On the other hand, if the cost of production is low, the company may be able to offer its products at a lower price, potentially increasing its competitiveness in the market.
Another important factor that can affect pricing decisions is competition. Companies must consider the prices that their competitors are charging for similar products or services in the market. If a company's competitors are charging higher prices, it may be able to differentiate itself by offering lower prices. On the other hand, if a company's competitors are offering lower prices, it may need to adjust its pricing strategy to remain competitive.
The target market is another factor that can influence pricing decisions. Companies must consider the needs and preferences of their target market when determining the price of their products. For example, if a company is targeting budget-conscious consumers, it may need to offer lower prices to remain competitive. On the other hand, if a company is targeting high-end consumers, it may be able to charge higher prices due to the perceived value of its products.
Finally, marketing strategies can also play a role in pricing decisions. Companies may use a variety of marketing techniques to promote their products, such as advertising, promotions, and sales. These marketing efforts can help to increase demand for a company's products, allowing it to charge higher prices. On the other hand, if a company is unable to effectively market its products, it may need to reduce its prices to remain competitive.
In conclusion, pricing decisions are influenced by a variety of factors, including cost of production, competition, target market, and marketing strategies. Companies must carefully consider these factors when determining the prices of their products or services in order to remain competitive and maximize profits.
You need to find out how much can you raise the price before demand starts to drop. If a company reduces its price, buyers will quickly switch to its products. There is always a chance that the competitor is pricing his products at a very low price as he is the market leader with a very large market share. Government: Price discretion is also influenced by government price controls enacted through legislation when it is. Market Penetration Pricing: In a highly competitive market with many players, the marketing manager may use this pricing policy that helps him enter the market and establish its position. When the product is priced higher the unit cost considering the fixed costs as well and sales demand falls below the volume level used to calculate the fixed cost per unit, the total sales revenue will be inadequate to cover the total fixed costs. Try to solve the problem and identify someone who can act on the customers behalf The goal of customer relationship management is to maximize the value and effectiveness of all opportunities of businesses have to connect with customers; provide outstanding service to customers; maximize customer satisfaction: attract and retain loyal customers; cultivate a maintain positive, profitable relationships with customers and develop individualized relationships with customers.
When services are uniform in nature, the service provider intends to differentiate his service from that of his competitor. For example, the sports club may charge a concessional price for senior citizens and higher prices from others. Finally, social concerns also deserve attention. Internal Factors: ADVERTISEMENTS: They are generally within the control of the organization. This is more so when selling is done in the rural markets. There are three types of business ownership: sole proprietorship, partnership and corporation. Market share - pricing products low to become a market leader.
Otherwise, it might have to quit its business. Increase in production causes an increase in marginal cost the varying amount in total cost required to produce and sell an additional unit of production. Price elasticity of demand of the product. Other companies give more emphasis on other marketing tools than price to create nonprice positions. In either case, the effect will fail if the price change is not commensurate with the total marketing strategy that it supports. Illegal pricing strategies include: Price discrimination - selling goods or services at different prices to different buyer is based on race ,age ,or income level. To achieve this goal, each element must work together to cut through the clutter.
Sales- The organization may decide a particular volume of sales and decide pricing based on that volume of sales. But as production moves up to 500 radio sets per day, the average cost falls. A firm may have alternative objectives such as a suitable return on the capital employed, maximisation of sales, capturing market from competitors, etc. Adding necessary profits with the cost of production would give the price. If multiple products are manufactured, the cost determination process is complex.
What are the 3 Major Influences on Pricing Decisions? (and Why?)
However, if the firm charges too high a price, the level of demand will be lower. Businesses need finance to assist with operations. Penetration pricing is intended to help the product penetrate into markets to hold a position. But the cost of production can be reduced, by co-ordinating the activities of production properly, the firm can reduce the price accordingly. Public relations can also come in the form of charitable events or community involvement.
Internal and External Factors Affect Pricing Decision
They feel that the company with the largest market share will enjoy the lowest and highest long-run profit. Marketer should analyze consumer behaviour to set effective pricing policies. To exhibit ethical work habits, and employee will be punctual, flexible, creative, attentive, complete tasks on time, deliver quality products, face challenges in a positive manner, manage your time, show respect by interacting in a positive manner with coworkers and demonstrate leadership by solving problems, resolving conflicts and encouraging mentorship The role of finance in business is to help capital move from investors to businesses. Composition of the product line of the firm. Fixed costs are not subjected to the level of output and they remain fixed for a period of time.
Pricing Decisions: Influencing Factors, Methods and Economic Approach
The clarity of the objective makes it easy to set the price. Taking all these factors into account can be both challenging and daunting. Customers How will buyers respond? High Demand- When the demand is high, prices can be increased to get higher profits. Differential Cost Plus Pricing: This method involves adding a markup on differential cost which is the increase in total cost resulting from the production of additional units. The following pricing decisions are found to be in force: i. Companies having lower costs can set lower prices, which generates greater sales and profits. Compared to internal factors, they are more powerful.
Several factors determine the price elasticity of demand. Legal and Regulatory Issues: ADVERTISEMENTS: Persuade marketers to change price decisions. If the company fixes a price that is much higher than that of the competitors, then people would not be attracted towards this product. They are called variable costs because their total varies with the number of units produced. This may signal to the management to adopt a more sophisticated and competitive advantage pricing because these products are essential for the company survival. If there is no demand for the product, the product cannot be sold at all.