Factors that influence price setting. 15.2 Factors That Affect Pricing Decisions 2022-10-24

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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.

What are the key factors that influence price setting?

factors that influence price setting

If the demand is highly elastic, i. Christensen and others like him have poured countless hours of research and analysis into the The Four-Phase Buying Pattern Based on a buying hierarchy model first outlined by Windermere Associates, most customers follow a four-phase buying pattern, with only the last phase being based on price. Makers of luxury products will need to drop prices especially when the economy is in a downturn The bargaining power of customers in the target market — who are the buyers of the product? In particular it covers legislative and fiscal developments. After adding necessary profits with the cost of production, it would give the price at which the products would be sold. By requiring sellers to keep a minimum price level for similar products, Similarly, bait-and-switch pricing is illegal in many states.

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15.2 Factors That Affect Pricing Decisions

factors that influence price setting

Legal provisions — A seller has to keep in mind several legal aspects and governmental regulations while fixing prices. Journal of Consumer Research 15 2 : 95—110. If due and attention are not given on the factor, it might happen that the price of a product may become so high that the consumer might reject it. This is a particularly difficult decision for high end retailers because they run the risk of diluting their brands with lower prices. Costs: Price needs to cover the cost of production and distribution of a product. Such factors include: i Organisational Factors: In the organization pricing decision happens at two levels.

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10 Major Factors Affecting Pricing of Product (Explained)

factors that influence price setting

After a price has been established, there are ways to change the base price in response to short-term needs. Factors Influencing Pricing — 2 Important Factors: Internal Factors and External Factors A business organization should consider all the factors that affect the pricing decisions. The Status of the Seller 9. Nor do you want to charge too high and lose customers to competitors. The organization also assesses that how the competitors respond to changes in the prices.

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9 Factors Influencing Pricing Decisions of a Company

factors that influence price setting

If you wanted to buy a certain pair of shoes, but the price was 30 percent less at one store than another, what would you do? Image Courtesy : rack. Signs that demand is low include finding yourself competing to win jobs, a shortage of work and fellow freelancers reentering the workforce. It must be noted, however, that such actual price decisions must keep into consideration individual product strategies and the pricing policies decides by the top level market. Developments and forecasts of growing consumerism. Firms need to recover these costs across their sales. 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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11 Pricing Factors To Consider While Setting Product/Service Price

factors that influence price setting

Price Elasticity of Demand 10. For instance, many countries tend to regulate specific industries, such as pharmaceutical or oil and gas production, which means that prices for certain products might be capped by local authorities Wolfe, 2017. Pricing policy must be established only after objectives of the firm have been decided and understood. Equally important is how much buyers are willing to pay for the offering. A differentiated product with value added features like quality, size, color, attractive packaging, different uses of the product, utility etc. Lesson Summary Economic changes force many companies to alter their prices to remain competitive. However, an industrial customer that buys substantial quantities of a product from a business may be able to negotiate lower or special prices.

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Internal and External Factors Affect Pricing Decision

factors that influence price setting

For example, the luxurious and service-oriented products, the profit margin will be adequately high and for less essential items and less expensive products, the profit margin will be comparatively low. Whatever the case, adjusting your pricing to the type and level of service you provide is a must. The best thing to do is sum up all your costs and divide by the number of hours you think you can bill a year. Similarly, if a company has to open brick-and-mortar storefronts to distribute and sell the offering, this too will have to be built into the price the firm must charge for it. In high season, you need to calculate the opportunity costs whenever you make a booking ie. Figure out how you are pitching yourself and use that to help determine if you are cheap'n'cheerful, high end or somewhere in between.

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Internal factors influencing price

factors that influence price setting

Buyers may be ready to spend money on luxury items. Demand is affected by factors like, number and size of competitors, buying capability and willingness of prospective buyers, their preferences etc. The firm must decide a realistic price based on current demand, competition, buying capability, etc. Recession Pricing Tactics Farmer Joe's other big concern is with the potential development of a recession, which is a period of reduced economic activity. But what are the major influences on pricing decisions? Explicability : The company should be able to justify the price it is charging, especially if it is on the higher side. Journal of Consumer Research 25 3 : 187—217. Exploitation of a monopoly position may bring short term profits but incurs backlash of a public enquiry into pricing policies.

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Factors that Influence Pricing

factors that influence price setting

Cost of Production One of the inevitable factors of pricing is product or service cost. Customers are willing to pay more if they like and value the characteristics of the product. But they are not directly proportional. The same principle also applies in case of In the long run, the company will obviously try to cover the entire cost of the product. The competitors also keep an eye on the price levels of a company. In Pricing decisions are affected by federal and state regulations.

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