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what are the basic factors affecting pricing?

what are the basic factors affecting pricing?

The firm may adopt a cost-plus strategy, target pricing or break-even pricing according to its policies. If the targeted sales are achieved, the manufacturer gets his targeted profit. But this is possible only when the product is backed by perfect quality. The manufacturer can offer various discounts that can be listed as follows: i. A firm may prefer a particular public image through its pricing policies. Price is one of the important elements of the marketing mix and, therefore, must be coordinated with the other elements – production, promotion and distribution. The position of the firm in the market and the nature of prospective buyers will influence the price. 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. In case the product is for middle class and there is high competitiveness in the market, the firm will fix a lower price. Understand why companies must conduct research before setting prices in international markets. But this distinctiveness created by novelty is only temporary. But the customer perceives the free pack’s value as the rate he/she would purchase it. For example, the products in defense canteens are much cheaper because of the change in channel structure and the tax differences. (ii) Competition – No manufacturer is free to fix his price without considering Competition unless he has a monopoly. In such conditions these companies offer them a minimum ROI guarantee and ask the sales staff to prepare a report every month and raise a credit note whenever the earnings are less than guaranteed. Many companies have established marketing goals or objectives and pricing is based to achieve such goals. There is also a chance that the competitor is using market skimming price. We will show some contrast with oil, where supply is the major factor. A consumer market research survey will give an answer to this. Metals matter. FACTORS AFFECTING MENU DESIGN AND PLANNING 1. Factors affecting tourism demand can be divided into two categories i.e. The consumer, The KING of the market is the one that dominates the market and the market trends. 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. Current demand can show three variations normally that can be explained as follows-. i) Fabric cost: Fabric is generally the most significant factor in costing of garment. Depending on the price changes by competitors, the firm adjusts the price of its product to stay, survive or maintain leadership in the market. About Us | 1. Posted one year ago. Sales staff working ready stock has many inherent advantages. Many organizations offer visual publicity allowances to their channel partners on the basis of the turnover achieved by them. To take care of these problems, one must consider the following factors that affect the pricing decisions: Current demand of the product decides the pricing decisions. Factors Influencing Price Decisions and Determination in Business: Internal Factors, External Factors, Impact and Examples. High Demand- When the demand is high, prices can be increased to get higher profits. Now, let us discuss the factors affecting the pricing decisions briefly: It affects the pricing decisions to a great extent. Competitors may also appear in the market. The government does this by passing various acts; For example- the MRTP Act, Consumer Protection Act, etc. What are the retailers, their types, and describe their functions? An organisation serving the same target market eats into the market share of the organisation. 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. (f) Firm Infrastructure- Structure, leadership, control systems, and company culture. 3. But not giving regular service coverage to the retailers/customers can lead to competition gaining advantage and loss of sale permanently. Further internal factors influence the price: 1. Since the market is starved, acceptance will not be difficult. Internal Factors: 1. Pizza delivery boys, courier company sales staff, LPG delivery staff, soft drink van salesmen, cosmetic counter sales girls, electronic goods showroom sales staff etc. ADVERTISEMENTS: Figure-2 shows the factors that affect the pricing decisions: Now, let […] Payment Policy Discount (Cash Discount)- In industrial sales, most of the customers have a policy to pay the suppliers after 90 days. Marketing 9 Months Ago 30 Views. Cost: While fixing the prices of a product, the firm should consider the cost involved in producing the product. Gold is one commodity that is continuously in demand. The pricing decisions of the firm have to be consistent with this philosophy. When is recommended a global franchising strategy? Factor analysis was performed to identify the main factors that influence pricing decisions of building materials. He should do so if the market is growing at a good rate, but if the market is not growing, he should think twice before entering the market. If there is no demand for the product, the product cannot be sold at all. Prices are discriminated on the basis of caste/social class of the customers. For example, Parle Glucose is being sold at an unbelievably low price and so no new product has entered this market to challenge their monopoly for many years. 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. 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. For example, steel industry is located near the source of iron ore and supply of coal. The organization may sell products at prices less than that of the competitors even if it is incurring high costs. Competitors may also appear in the market. Multinationals are happy if the product achieves breakeven in five years. This helps the marketer to get an opportunity to spend less and give more to the customer. The organization also assesses that how the competitors respond to changes in the prices. This return can be in the form of price appreciation or dividend income. This lowering of price is a temporary action. It may have a basic philosophy on pricing. There are various factors affecting the price of gold. Backward classes and castes pay lower fees for education, competitive examinations etc. This is the big one, because nothing adds to an airline's cost of doing business like the price of jet fuel. They include demand, competition, buyers, suppliers, economic conditions and government. Arriving at a pricing decision requires effective analysis of costs, demand and competitor strategy. between major cities in a large country. If the product cannot be differentiated with special features, a firm cannot charge a higher price than that of its competitors. 3000 and get 30% off). Below is a graphic illustration of a typical corn basis. A firm also has to look at a myriad of other factors before setting its prices. 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. Disclaimer | iii. • What are the basic factors that affect price in any market? What considerations enter into the pricing decision?. If there are no ready takers for the product, it is said to have failed in the market. 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. Travel service organizations especially airlines give these mileages travelled by the customer. iii. This is one of the reasons why the industry chooses to be close to the source of raw material, if the quantity of raw materials required is substantially high. 6. Different groups of users affect pricing decision: The service provider may charge discriminatory price for the services offered by him. Each channel has its merits depending on the marketing strategy of the firm. The customer, on scratching the card finds out the value of the discount that is deducted immediately from the bill. The management has to review the objectives of the firm as they are the real deciding factor. Some organizations had tried to use geographical pricing which led to confusion in the minds of customers and resulted in the loss of sales. Factors that Affect Pricing . 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. The organisation has to make sure that they have the right employees handling the right tasks at the right time. Government controls regulation or pressures on pricing. The actual mechanics of pricing are dealt with at lower levels in the firm and focus on individual product strategies. 9) Competition – The pricing strategies of competitors affect the product pricing decisions. Because of these costs, it sometimes happens that the price of the product becomes so high that the consumer rejects it. What are the basic factors that affect pricing decisions? Promotional pricing is defined as lowering of the price of a product temporarily to attract more customers and increase sales efforts. For example, if the price of cotton goes up, the increase is passed on by suppliers to manufacturers. Whatever be the cost of production, there is a price at which the consumer is willing to buy. g. Cosmetics being promoted through beauty parlours need to be given with higher discounts to the parlour owners. E.g. BUSINESS M 200-What are the basic factors that affect price . (b) Significant Difference in Transport Costs: In commodities and raw materials and machineries where the transportation is added to the basic price while supplying to customers, the end price changes from customer to customer on the basis of the significant differentiation in the transport cost. The number of close substitutes – the more close substitutes there are in the market, the more elastic is demand because consumers find it easy to switch.E.g. iv. Introduction to Consumer Behaviour . The market research agency will also tell the marketer whether the demand is growing, stagnant or reducing. If prices are set high, a competitor will usually enter the market with a low priced product. Thus, while fixing the prices, the firm must be able to recover both the variable and fixed costs. Competition: pricing decision is affected by the act of competition. Stock prices are determined in the marketplace, where seller supply meets buyer demand. Experience should affect how much you charge. Demand & supply are the basic factors that influence the movement of any commodity product prices. Steady Demand- When the demand is steady, prices are maintained at the same level as competition. Lets us know the King first. This method of pricing is used when there is competition already present in the market. Incorrect pricing will definitely lead to product failure. 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. The company was asked to cancel the offer and was also punished for wrong trade practices. If the management has control over the factors, it will come under internal factors, if not it will come under external factors. The pricing also depends on the analysis of value chain. For instance, an organization has a pricing objective to increase the market share through low pricing. 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. 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. For example-. 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. d. Local Promotions Allowance: Many organizations offer local promotional allowance that is linked to the value/volume sales of a particular product. It must be coordinated with other elements, i.e., product, place and promotion. Basically, this kind of price adaptation is a part of industrial/institutional selling practices where pricing is a part of the negotiations of the supply contract. Such factors could be studied under two groups: Internal factors are the forces which can be controlled by a firm to a certain extent such as company objectives, marketing mix, costs, etc. For setting a price of a new product, three points are to be considered: If the product is entirely NEW in all respects, skimming method could be used. Consumer Preferences towards Western Origin Fast Foods in Urban India. Market Entry Pricing (Market Penetration Pricing): When the market has strong competition with very high market share, it becomes difficult to attract the customers towards a new product with ‘me too’ qualities. Demand in services, supply and demand of products, demand for a product during special occasions such as festivals generally affect pricing decision of a firm. If your product is the market leader, you can maintain premium pricing to earn more profits than the competitor as the customers are willing to pay premium for the popular product. Abstract. If more sales are achieved, he gets more profits and if lower sales are achieved, he gets lesser profits. Also discuss the variables/ elements of Price Mix. The market is flooded with too many products, both Indian and foreign. Factors Affecting Pricing Decisions in Marketing Management: Internal Factors Influencing Pricing Decisions: External Factors Influencing Pricing Decisions: Influencing Price Determination: Internal and External Factors. Cost: While fixing the prices of a product, the firm should consider the cost involved in producing the product. Most important Factors affecting Pricing Decisions. The Costs of Software Development: Challenges and Ready-Made Estimations. Prices of food and rooms vary as per the quality gradations declared for them. In either case, the effect will fail if the price change is not commensurate with the total marketing strategy that it supports. (d) Collaboration with Local Organizations: When an organization is engaged in international sales, there is difference in pricing between products exported and products manufactured in that country with collaboration of the local organization. A consumer is someone who pays a sum to consume the goods and services sold by an organization. The buyers can influence price decrease by majority of them not buying and giving negative feedback about the price to the distributors and sales people. BUSINESS M 200-What are the basic factors that affect price ; rey_writer. Similarly, most of the luxury products are priced at a much higher price than their production cost as consumers perceive them to be of a higher value. No manufacturer is free to fix his price without considering competition, unless he has a monopoly. (12) If the purchasing power of the consumers is high then the company can charge a higher price for the product. Therefore, economic conditions affect the demand for goods and services. What are the objectives of Pricing? Price factors. We pay for house rent, we pay for taxi, if need a laptop we must pay to buy it. Product’s stage in the life cycle etc. Basically, the prices of products and services are determined by the interplay of five factors, viz., demand and supply conditions, production and associated costs, competition, buyer’s bargaining power and the perceived value. a. If the company fixes a price that is much higher than that of the competitors, then people would not be attracted towards this product. 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. Large manufacturing companies establish marketing goals/ objectives and pricing contributes its share in achieving such goals. Regulations are designed to protect consumers, promote competition, and encourage ethical and fair behavior by businesses. Giving rebates and discounts on products is also a price objective that influences the customers’ decisions to buy a product. While negotiating the final price, the sales person offers discounts and allowances depending on the quantity being negotiated, long term association expected with the customer, payment terms being negotiated etc. The various policies may be- (1) Cost-oriented pricing policy; (2) Demand- oriented pricing policy; and (3) Competition-oriented pricing policy. What is the importance of data in marketing? Therefore, a marketer should adopt a well- planned approach for pricing decisions. For example – it has certain costs of manufacturing and marketing and it seeks to recover these costs through the price. Newspaper Coupon Distribution- Coupons can be inserted in daily newspapers so that they reach all the households in a given area of operation. On the basis of the marketing objectives, the pricing policies are adopted. A price near to the competitor’s which also provides for some profits should be chosen. ii) Marketing mix: one of the key elements of marketing mix is price. Sometimes, the government may announce a general policy about pricing of goods. The market may have the following conditions: In such a condition, the marketer has a pioneer advantage position. 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. Actually, the company increased the price of MILO, by adding the price of a bar of KIT KAT to it. 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. This Question has Been Answered! To enter the market, he needs to use Product Differential Policy where he gives the customer the same product with a big difference and more benefits. (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. In consumer-oriented marketing, the consumers influence the price. The channel partner can use this allowance for various local promotions that can be used to push the product sales considerably. 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. Videocon maintained its market leader position for many years till Whirlpool and LG dethroned it on the quality aspect. Price elasticity of demand of the product. 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