While the market and demand set the upper limit. For example- Lee, Arrow and Park Avenue shirts, are sold at a high price in the market. Some firms allow workers’ participation in decision making and therefore in such firms, all the employees give their views and suggestions for the pricing policy. A firm may prefer a particular public image through its pricing policies. Competitors may also appear in the market. Street Hoardings with Channel Partner’s Name as Exclusive Dealer: Most of the electronics goods and white goods organizations follow this policy of offering allowances for putting up street hoardings at strategic locations in the area of operation of the channel partners. Senior citizens get fifty percent concession on all government owned transport like railways, state road corporation buses etc. Over-all price strategy is dealt with by top executives. There has been a revolutionary change experienced in the Indian market after the liberalisation and opening up of the economy. Price discriminations are seen during various timings. Who determine the price structure of a product, top management, CEO, the entrepreneur, answer is no. Organizations pay the channel partner towards this expense as sales staff uniform allowance. The cost of manufacturing is a key factor in determining the price of a product. This difference is according to the customer’s perception about the product. The correct systems need to be used for the flow of information from the customers and distributors to all the concerned employees of the organisation. 3. Depending on the market, there could be other factors such as currency exchange rates , environmental concerns and political instability. This leads to higher-price realisation. The new products are hard to be produced, especially with a right price. Making changes to the product also results in costs because of need of different raw materials, technological investments, etc. Explain difference between wholesaler and retailers and their types. The manufacturer can offer various discounts that can be listed as follows: i. Understand the factors that affect a firm’s pricing decisions. There are many factors which we need to consider under each category. Factors Affecting Pricing Decisions in Marketing Management: Internal Factors Influencing Pricing Decisions: External Factors Influencing Pricing Decisions: Influencing Price Determination: Internal and External Factors. What are theconsiderations for entering into a pricing decision? Scratch cards are distributed on the pack with every product and these scratch cards can have various discount values printed on it. In market penetration pricing, the product is offered to consumers at nearly the cost price so that the difference between the product and the competitor is very high. A firm may have various objectives and pricing contributes in achieving them. The main defect with this approach is that it disregards the external factors, particularly demand and the value placed on goods by the ultimate consumer. This way, the channel partner ensures safe transit of goods and a little extra money for him by way of keeping the transit damages lower than the allowance paid. This is referred to as “Mark down Prices” or Price Cutting. ii. The price factor which may be ignored initially would become important when the product becomes an ordinary one because of being in constant use. This means that the management of the business should take into account the change in the price and offering of the competitors and take steps accordingly. (f) Firm Infrastructure- Structure, leadership, control systems, and company culture. If the product is a new concept, the marketer will be required to do concept selling that requires high costs. Since the market is starved, acceptance will not be difficult. Different groups of users affect pricing decision: The service provider may charge discriminatory price for the services offered by him. In international markets, currency exchange rates also affect pricing decisions. The pricing policies differ from one organization to another. For example, the products in defense canteens are much cheaper because of the change in channel structure and the tax differences. When HUL launched ‘Dove’ they also advertised it to have superior quality ingredients and so it was launched at a high price and it continues to be priced at a higher level than all the soaps in the market. Giving rebates and discounts on products is also a price objective that influences the customers’ decisions to buy a product. (ii) Role of Top Management (Organisational Factors): It is the top management which generally has full authority over pricing. 1,680/-. It is important to consider the channels for distribution selected to market the products. The factors that businesses must consider in determining pricing policy can be summarized in four categories: 1. We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. If a product is priced less than the cost of production, the firm has to suffer the loss. Price elasticity of demand of the product. Composition of the product line of the firm. Therefore, a marketer should adopt a well- planned approach for pricing decisions. Marketing, Products, Pricing, Factors Affecting Pricing Decisions. If prices are set high, a competitor will usually enter the market with a low priced product. Making price changes or setting prices without considering Product, Promotion and Place elements will generally have negative impact on the entire marketing strategy and may also result in losses. One factor is competition. If the economic condition of the target market is good, there is great opportunity for the organisation to generate sales via different pricing methods and strategies – Market penetration, market skimming, perceived value pricing, demand differential pricing, etc. Request PDF | On Jan 10, 2015, Robert Azuayi published The basic factors that affect price in any market? The customer, on scratching the card finds out the value of the discount that is deducted immediately from the bill. For example-. Cost: While fixing the prices of a product, the firm should consider the cost involved in producing the product. Because of these costs, it sometimes happens that the price of the product becomes so high that the consumer rejects it. Content Filtration 6. These visual publicity allowances can be used in various ways by the channel partners. Abstract. Basic factors that affect price in any market are: 1: The price floor, which may be coupled to product price or another thought. The value of a given product to the consumer is the prime consideration. i. In consumer-oriented marketing, the consumers influence the price. Factors Affecting Pricing Decisions in Marketing Management 2. If the demand of the product is inelastic, high prices may be fixed. 11) Government regulations – The government regulates the prices of products through its various policies. This attracts customers for trials and if the product is found to give higher returns than the price paid, many customers switch over to this product. There are several factors that impact the pricing decisions of an airline. What are the Key TQM (Total Quality Management) concepts and tenets? For example- the price hike for petrol or diesel will automatically increase the price of vegetables, fruits, provisions, etc. Factors Affecting Pricing Policy – 4 Basic Factors that Businesses Must Consider . Current supplies can be of three types normally as follows-. No manufacturer is free to fix his price without considering competition, unless he has a monopoly. Penetration pricing is intended to help the product penetrate into markets to hold a position. Most of the companies/channel partners avoid this process as it involves higher cost if not properly done. 2. Two, three, four units combined to get a price off. But at the same time, he should not fix a too low price as people will suspect that the goods are not of high quality. For instance, an organization has set a goal to produce quality products, thus, the prices will be set according to the quality of products. Before uploading and sharing your knowledge on this site, please read the following pages: 1. Many companies have established marketing goals or objectives and pricing is based to achieve such goals. are taken into account while fixing the price. If customers belong to elite class and competition is low, the firm may adopt skimming. Steady Supply- When the supplies are steady, prices remain steady. There are many factors that affect the price of a stock, The most basic factor is investor perception. For example – it has certain costs of manufacturing and marketing and it seeks to recover these costs through the price. Low Demand- When the demand is low, prices should be maintained at the same level even if the competitor increases them. dictum vitae odio. Use pattern and turn round rate of the product. (e) Strategy to Fight/Take Advantage of Local Competition: Organizations can have a different pricing structure as a strategy to fight competition in a particular location. Another significant internal factor affecting pricing decisions is the organisational structure of the firm. But the cost of production can be reduced, by co-ordinating the activities of production properly, the firm can reduce the price accordingly. Higher the demand for a product, lesser the need for giving additional discounts, credit etc. Depending upon the product and market conditions, the manufacturer can decide to offer price discounts and allowances to the customers which are a part of negotiating the purchase deal with various customers. International Marketing Tutorial 10 – Pricing and Promotion 1. The channel partner is the right person to choose the right location in his town/area of operation. i) Marketing objectives: the marketing objective of the product must be kept in mind before setting the price of the product, the product is for high class, middle class or lower class. The pricing also depends on the analysis of value chain. For example, in a cinema theatre, the front rows are charged less and back rows/balconies are charged more, while for drama theatres, front row charges are the highest while back rows are charged less. 4. Getting very high profits is possible only if the product is essential and the organization has a monopoly. Huge Collection of Essays, Research Papers and Articles on Business Management shared by visitors and users like you. Think about the difference between Revlon and Chanel, the two could make the same perfume but you would never expect to pay the same for both. Costs: In order to make a profit, a business should ensure that its products are priced above their total average cost. Corporate and marketing objectives of the firm. E.g. Currently, also with taxes on fuel having high differentiation within two states, the truckers pick up the maximum quantity of fuel in a state where the prices are low and avoid buying fuel in that state. A strategy of high prices coupled with heavy promotional expenditure in the initial stages has been proved successful in a number of cases. Thus, now know the Factors Affecting Pricing of Product. The channel partner can use this allowance for various local promotions that can be used to push the product sales considerably. The organisation has to make sure that they have the right employees handling the right tasks at the right time. The factors affecting pricing decisions are varied and multiple. But external factors are the forces outside the firm over which a business has not control. Internal Factors: 1. The price should be fixed keeping in view all these factors. What considerations enter into the pricing decision? For example, if the price of cotton goes up, the increase is passed on by suppliers to manufacturers. Large manufacturing companies establish marketing goals/ objectives and pricing contributes its share in achieving such goals. Shop signages are becoming a common method of giving visual publicity allowance as there are no rentals involved and it gives an amount of visual publicity spread over in the cities and towns. They determine the basic ranges that the product falls into in terms of market segments. Sometimes, the government may announce a general policy about pricing of goods. A price near to the competitor’s which also provides for some profits should be chosen. Base price for product ‘X’ is Rs. Cost: While fixing the prices of a product, the firm should consider the cost involved in producing the product. The consumer, The KING of the market is the one that dominates the market and the market trends. For example, steel industry is located near the source of iron ore and supply of coal. when an organization selling coconut hair oil adds paraffin to it in equal quantity, the price of the final product should drop as paraffin is priced much lower than coconut oil. If more sales are achieved, he gets more profits and if lower sales are achieved, he gets lesser profits. The possible range of prices also gets affected because of legal and ethical constraints. Thus, price is an important element of marketing mix, as it influences the acceptability, sales volume and competitive strength of a product. a. In order to attract the customers, different characteristics and benefits are added to the product, such as quality, size, colour, attractive package, alternative uses, etc. Factors that Affect Pricing . 10,000/-. Expert Answer . On every usage of the service, the customers get ‘Loyalty Points’ in proportion to the expenditure on that organization. If the company fixes a price that is much higher than that of the competitors, then people would not be attracted towards this product. (e) Service- Customer support before and after the goods are sold. Value based pricing needs consumer research to find the consumer’s perception about the product. Moreover, pricing strategy has to fit into the overall marketing strategy. A. Production related – Commodities are capital-intensive products i.e. Option Premium is the value we get by subtracting the Intrinsic Value of Option from the Current Market Price of that particular Option. In such a situation, the marketer is required to analyze whether he can sustain losses for a long period of time till he gets enough market share, to make it economical to sell at a low price. on the response of customers. ur laoreet. Earlier, the tax structures in all the states were different for different products and that led to products moving from one state to another without any papers and people making money with complete loss to the state government whose taxes were high. But have you ever wondered about what drives the stock market—that is, what factors affect a stock's price? (h) Technology to support value-creating activities- Research and development of existing and new products. Lower quality products are sold at a low price and higher quality products are sold at higher prices. Many times when brand loyalty and product differentiation between competitors is low, the customer may purchase an alternate product and refuse to accept delivery of stocks ordered earlier leading to costs without effecting sales. This cost includes both the variable and fixed costs. These coupons can be directed towards a particular product/particular company’s products or any purchase in the particular stores. 5. In either case, the effect will fail if the price change is not commensurate with the total marketing strategy that it supports. Payment Policy Discount (Cash Discount)- In industrial sales, most of the customers have a policy to pay the suppliers after 90 days. Price is only one of the elements of marketing mix. The firm can fix a low selling price. Return on investment, market share, meeting competition and profit are the main objectives of pricing. Sometimes, however, when a manufacturer appears to be making large profits on a particular product, supplies will attempt to cash in on the profits by charging more for their supplies. Disclaimer | Government controls regulation or pressures on pricing. External Factor 2. These factors that affect pricing are discussed below- 1) Marketing Mix – Management can easily do variations to the price component of the marketing mix element. The nature and behaviour of the consumers and users, for the purchase of a particular product or service, do affect pricing, particularly if their number is large or if they perceive a product of better quality and a symbol of status and prestige. By way of this, they ensure that channel partners appoint exclusive sales staff who give coverage to retailers/customers in absence of the company staff. For instance, an organization has a pricing objective to increase the market share through low pricing. The market may have the following conditions: In such a condition, the marketer has a pioneer advantage position. Report a Violation 11. Stock prices are determined in the marketplace, where seller supply meets buyer demand. Everything has a price. For example, Maharashtra has very high VAT on fuel and truckers buy high quantity of fuel before they enter Maharashtra. Pricing of competition plays a major role in pricing decisions. If let’s say, a certain retail seller has a strong reputation, it will pass on to your product. The purchasing power of the consumer as well as consumer behavior, in the larger sense of the term, also has to be reckoned with. Depending on the uniqueness of the product value to the customer, the organisation sets a price. When one starts thinking about factors affecting pricing decisions, the first and foremost is the consideration of costs and profits but this can lead to various problems of consumer acceptance and stabilizing sales volumes. Expert Answer . It includes direct price controls through statutorily fixed maximum selling prices as well as indirect pressures to hold the price line at certain levels. Pricing also has to be consistent with the overall objectives of the firm. Such external dimensions also have to be reckoned while formulating the pricing decision. (b) Operations- Transforming inputs into finished products and services with high quality at lower costs. Adequate Supply from Few Competitors: In such a situation, the marketer will be required to enter the market with a ‘Penetration pricing strategy’ i.e., keep the price lower than that of competitors to make the customer aware of low price – better quality or low price – same quality condition. The choice of segment also tells us the profile of the customer and the number of customers present in the segment in a given area. When the distributors are not convinced of good ROI in distributing a particular company product they refuse to become distributors for the company. 5 (1 Ratings ) Solved. Sometimes the opposite also takes place. d. Purchase Value Discount Coupons- Some stores will offer discount coupons on the purchase of a particular value say ‘on the purchase of Rs.3000/- a discount coupon of Rs.1000/- free’. Change in channel structure affects the pricing to a great extent as there are profit margins of the channel partners and depends on the number of channel partners between the manufacturer and the customer (levels of distribution channels). Understand why companies must conduct research before setting prices in international markets. Normally these discounts are offered on service products. These factors affect market and investment by studying and analyzing it, it helps one too when to invest, where to invest and when to take money out from a particular company or from a particular sector as changes in economic factor will affect the return on investment. On the other hand, if demand is elastic, the firm should not fix higher prices, rather it should fix flexible (lower) prices than that of the competitors. For example, a firm using a long distribution channel may have to build a large profit margin into its price. Rectifying the settings to suit the purchaser. This allowance is rare but is being given by some organizations to get better quality channel partners. The determination of the selling price is a major policy decision for the firm and the cost accountant can make an important contribution to this decision making process by providing the management with costs, which are relevant to the pricing decision at hand. The sales officer will give some of the above named items free to customers and negotiate higher quantity. The firm has certain objectives long term and immediate in pricing. Other than these factors, there are few other things which will affect the cost of an apparel product directly. Sometimes, suppliers have monopoly in the market in the absence of any other supplier for the same raw materials. Survival- In this case, the organization lowers its prices to survive the onslaught of the competitor as a short-term strategy or sometimes long-term objective to keep getting sales, maybe at lower profits. In deciding to market a product, a firm should also try to decide what prices are realistic, considering current demand and competition in the market. The following pricing decisions are found to be in force: Organizations work for the single most important objective of making profit and lots of profits at that. Services Expertise Company Portfolio Blog Contacts Contact us . Pricing decision is thus related to the characters, nature and preferences of the buyers. This way it becomes very difficult to enter the market and challenge the market leader. Certain organizations want the interim sales staff appointed by the channel partners also to wear uniforms with company logos. Superior Quality Image (Premium Pricing): If the marketer can create a superior product quality image for the product, he can go in for premium pricing where the marketer can say that the ingredients are of superior variety and give better benefits to the consumer that suit the premium price. ii. High Supplies- When supplies are high, prices drop in the case of commodities but in the case of FMCG, the marketing manager will offer consumer promotions and hold the price levels. 6) Suppliers – The price at which the raw materials are bought from the suppliers, and changes in the same by the suppliers also affect the pricing decisions. MENU DESIGN • The menu is the heart of any restaurant; it showcases everything that restaurant have to offer for food and beverages. But the customer perceives the free pack’s value as the rate he/she would purchase it. a. Toothbrush free with the toothpaste. For example, when BOOST was launched, it talked about being ‘more creamy and more chocolaty’ and so was launched at a premium price even when the competitor Bournvita was holding a near 100% market share. Indian entrepreneurs look for breakeven to be achieved in a short period of a maximum of two years because there are very few Indian products which are launched on a large scale and become successful. Trade restrictions such as duties, taxes and quotas would increase the price of the product and the firm fixes a higher price to recover the taxes and duties. On the basis of the marketing objectives, the pricing policies are adopted. Whatever be the cost of production, there is a price at which the consumer is willing to buy. Similarly, the marketing manager also helps and assists the top management in framing the pricing policies and strategies. Level of market demand Answer to What are the basic factors that affect price in any market? There is also a legal restriction imposed on the maximum retail price that can be charged by the producers. In geographical pricing, different prices are planned for different geographical regions. E.g. Account Disable 12. The sales person who negotiates the price at the highest level with maximum quantity is then rewarded in terms of incentives. Step-by-step answer. If you decide to sell your product via a third party reseller, or middlemen such as wholesalers and retailers, then the success of your marketing is going to be highly dependent on them. A consumer is someone who pays a sum to consume the goods and services sold by an organization. The price charged should cover the unit cost of production and earn a reasonable profit. What considerations enter into the pricing decision?. But in actual effect, the coconut oil with paraffin sells at a much higher rate than pure coconut oil as consumers perceive its non-sticky quality at a much higher rate. ii. (ii) It determines the amount of the revenue of a firm. It is seen that many products are sold at low prices, mostly in the initial stages. are other considerations which affect the pricing of the products. The reason behind this is due to the saving on import duties and transportation costs. Factors Affecting Price Determination (Internal and External Factors): Factors Affecting Pricing Decisions (Top 5 Factors): Factors Affecting Pricing Decisions (With Impact). Factor Influencing of Pricing Decision: Internal Forces and External Forces. The two factors you are looking for are climate and topography(the geography of the land).This affected their needs forr clothing, food, and shelter. In such a pricing, all the pricing elements are quoted differently along with the base price. Demand and supply play a major role in pricing of gold. This is the fifth factor that can greatly affect your product pricing strategy. Demand & supply are the basic factors that influence the movement of any commodity product prices. Terms of Service 7. 8. 5. BUSINESS M 200-What are the basic factors that affect price . If the product idea is acceptable, he can have premium pricing strategy to skim the market till such time that competition sets in, when he can reduce the price to make market entry difficult for competition. Another factor that influences pricing is competition. Factors Affecting Pricing Decisions (15 Factors): Factors Affecting Pricing Decisions in Marketing Management (Examples): 5. Social and ethical consideration, 3. 1. Thisstudy sought to explore the factors that influence pricing decision.The researcher conducted a systematic review of literature thatinvolved desk research on previous research works mainly contained inmarketing journals. So the marketing manager ensures steady supplies to the customers, which may be at lower quantities. What considerations enter into the pricing decisions? Distribution channels also sometimes affect the price. If the product enjoys good demand, the pricing decision can be aimed to utilise this trend. This helps him attract more customers as the customer effectively sees the product dropping, as additional benefits in terms of promotions come with the product. Factors affecting tourism demand can be divided into two categories i.e. In addition to all the internal forces mentioned above, any business firm has to encounter a set of external factors while formulating its pricing strategy. Objectives of the Business : There may be various objectives of the firm such as getting a reasonable rate of return, to capture the market, maintenance of control over sales and profits etc. No firm would want to operate at a loss. Explain New Product Pricing strategies or, Explain Skimming Pricing and Penetration Pricing strategies. 1) Marketing Mix – Management can easily do variations to the price component of the marketing mix element. These factors that affect pricing are discussed below-. The price of the product depends upon the characteristics of the product. g. Cosmetics being promoted through beauty parlours need to be given with higher discounts to the parlour owners. New products appeal too many as novel items. A good marketing research agency will give you these figures authentically. (g) HR Management- Recruiting, hiring, training, compensation. Thus, if the product has distinguishing features, then the firm has greater freedom in fixing the prices and customers will also be willing to pay that price. How much is the transport cost for a tourist to go to a destination? All sorts of organizations are using this type of visual publicity allowance, more so liquor and cigarette companies as they are otherwise prohibited from doing visual publicity. Mark-up pricing is the method in which the price is determined in the method of pricing based on cost calculations. (7) Achieve Planned Return on Investment: While fixing the expected rate of return, the cost of the product, inflation rate, profits desired, etc. Extent of Competition in the Market 4. All these factors determine the upper and lower limit of price. Air travel and train travel are weak substitutes for inter-continental flights but closer substitutes for journeys of around 200-400km e.g. iii. Home » Trading » The Factors Affecting Option Prices Option Price involves two components – Intrinsic Value of Option and Option Premium. Factors affecting Price of a Product The pricing decisions for a product are affected by internal and external factors. Let us look at these factors one by one and their impact on the pricing decisions: The first step in determining the demand is to decide the segment of the market where you want to position your product. 2) Organisational decision making and implementation – The skills of the management and right decision making by them goes a long way in successful pricing. Market is flooded with too many products are sold at low prices consider when pricing their! Of sales through proper promotional activities one organization to another in a boom condition the! Advantage position the liberalisation and opening up of the product, promotion and place are the Forces outside the may. 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