iii. Generally, the top management has full authority for framing pricing objectives and policies. Competitors may also appear in the market. The Utility and Demand 3. Warranties and after-sale service facilities attached to a sale also have a bearing on the pricing of goods. Pricing is all around us. To motivate them to pay on delivery or in advance, sellers offer cash discounts to the buyers in accordance with the interest rates operating in the financial markets. It may have a basic philosophy on pricing. Inflation: As gold prices react to inflation, Indians prefer to invest in gold. Several factors influence the pricing decisions of a firm and they can be divided into two broad divisions, namely internal factors and external factors. This cost includes both the variable and fixed costs. Everything has a price. Understand the factors that affect a firm’s pricing decisions. Competitors may also appear in the market. Competition in the market is a crucial factor in price determination. When your market share is much lower than the market leader, it is advisable to maintain prices lower than the market leader and attract consumers because of the saving achieved. In this method, the marketing manager may decide to undercut the prices by using penetration pricing strategy or may use premium pricing strategy to place the product at a higher quality level. (13) Promotion cost would normally increase the selling price as the company would like to recover the cost from the consumers. a. The contract signed with suppliers make have changes after its renewal. Different groups of users affect pricing decision: The service provider may charge discriminatory price for the services offered by him. Proper adjustment should be made for regular or irregular rebates, concessions, cuts or other reductions in prices, allowed to customers as an incentive to promote sales. If not, the usual tendency is to charge the increased cost of production to the consumer. Furthermore, today, on account of the various lines of production as well as distributing, the overhead costs finding the cost of production is not so simple. 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. This leads to higher-price realisation. This is the fifth factor that can greatly affect your product pricing strategy. Lower quality products are sold at a low price and higher quality products are sold at higher prices. The Costs of Software Development: Challenges and Ready-Made Estimations. If the company fixes a price that is much higher than that of the competitors, then people would not be attracted towards this product. Certain organizations want the interim sales staff appointed by the channel partners also to wear uniforms with company logos. This method of pricing is used when there is competition already present in the market. The main defect of this approach is that it disregards external factors especially demand and the value placed on goods by the ultimate consumer. This will attract the customers towards the product and the chances of success are higher. Corporate and marketing objectives of the firm. The following are some of the reputed market research agencies-. In the off-season, discounts are offered for various goods and services and in the peak season the rates soar to the highest level. Use pattern and turn round rate of the product. Quantity Discount- Any customer who is purchasing a quantity more than a stipulated quantity, is offered discounted pricing to motivate him to keep doing so. Newspaper Coupon Distribution- Coupons can be inserted in daily newspapers so that they reach all the households in a given area of operation. Posted one year ago. The company was asked to cancel the offer and was also punished for wrong trade practices. Internal Factor External Factors - There are a number of influencing factors which are not controlled by the company but w view the full answer. Stock prices are determined in the marketplace, where seller supply meets buyer demand. The price should be fixed keeping in view all these factors. The marketing manager may increase the price of the product gradually. The analysis will tell the manufacturer whether he has any chance to enter the market and get orders from the customers. When Colgate-Palmolive discovered that they were number two in volume sales as ‘Pepsodent’ had overtaken them due to their rural market presence and absence of Colgate in the rural market, they initiated rural market coverage through their channel partners giving them specific van allowances. All these companies charged premium prices as the customers then thought of a refrigerator as a luxury. The customer can accumulate these points and avail various gifts or discounts from the airlines. Further internal factors influence the price: 1. Once current demand is established, one can do research on the current supply position. They supply the required items of production to the firm. The organisations constantly gather information from retailers, sales people, etc. The suppliers of raw materials and other inputs can have a significant effect on the price of a product. Factors related to the personal affairs or internal affairs of a country that affect the economy of the country participating in the international marketing are considered as domestic factors. 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. i. Large manufacturing companies establish marketing goals/ objectives and pricing contributes its share in achieving such goals. In business economics, if demand exceeds supply, there tends to be a mad rush for the few available products, thus inflating the price of the product and vice versa. For example. (iv) Political and Legal Aspects – Government interference, such as control of prices, levying of taxes etc. Stay tuned for a deeper analysis of the trends in a special commodities feature, which will be included in next month’s World Economic Outlook. Decisions made for other elements may affect pricing decisions. This article will further help you to learn about: 1. The first is product cost, which establishes a price floor, or minimum price. 2.) The factors that can influence price decisions may be divided into two groups: They are generally within the control of the organization. 1) Marketing Mix – Management can easily do variations to the price component of the marketing mix element. In the country like India, the state exercises a lot of influence on price decisions in respect of a large variety of products. Huge Collection of Essays, Research Papers and Articles on Business Management shared by visitors and users like you. Product Cost 2. One factor is competition. On every usage of the service, the customers get ‘Loyalty Points’ in proportion to the expenditure on that organization. price factors and non-price factors. Factors that affect commodity prices. Instead of going in for transit damages insurance, various companies go in for directly paying the channel partner a fixed percentage of the invoice as transit damages allowance, especially when the channel partner is transporting the goods by himself. Pricing decision is thus related to the characters, nature and preferences of the buyers. In some industries, a firm may use price reduction as a marketing technique; others may raise prices as a deliberate strategy to build a high-prestige product line. Having a pricing objective isn’t enough. For example, Maharashtra has very high VAT on fuel and truckers buy high quantity of fuel before they enter Maharashtra. Now, let us discuss the factors affecting the pricing decisions briefly: It affects the pricing decisions to a great extent. The manufacturer can also offer certain allowances as a pricing policy to the FMCG customer which can be listed as follows: Sending company sales staff proves to be very expensive as the business and profit generated by the company sales staff and the salaries paid to them do not match. Understand why companies must conduct research before setting prices in international markets. Pricing activities have such direct effect on sales volume and profit that the marketing manager cannot keep himself aloof pricing policy marking. c. The outdoor publicity agent cannot cheat the organization by not putting up a hoarding and claiming the money or removing the hoarding early before the period is over as the local channel partner can notice it easily. e. Healthy baby contests sponsored by channel partner of baby food manufacturer with banners of baby food being displayed at the venue. Answer to What are the basic factors that affect price in any market? Hotels at scenic locations charge the highest price and hotels in crowded locations charge lower prices. As already pointed out, the firm can reduce the price, if it can reduce the cost of production. (11) If the brand is very popular among consumers, the manufacturer can charge a higher price for the product. In these display windows also, the local channel partner’s name is used for the reasons stated above viz-. Sometimes, a higher price may itself differentiate the product. The other elements, product, promotion, and place (distribution channels) are not easy to change as it takes a considerable time, effort, and coordination to make changes to them. It includes direct price controls through statutorily fixed maximum selling prices as well as indirect pressures to hold the price line at certain levels. between major cities in a large country. In the past, fixing of price was a simple affair- just add up all the costs incurred and divide the final figure by the number of units produced. The marketer can come with product differential policy and charge a higher price but then he will be required to spend a lot of money educating the customers that his product is better in quality than the competitor’s and so they should pay more for his product. The various policies may be- (1) Cost-oriented pricing policy; (2) Demand- oriented pricing policy; and (3) Competition-oriented pricing policy. This is referred to as “Mark down Prices” or Price Cutting. iii. 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