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FACTORS AFFECTING PRICING DECISION

           Factors Affecting Pricing Decision

        Pricing decision is an important task for the management of a company. An individual company is not free in the determination of prices for its products. It is bound to take into consideration many other factors. For a judicious pricing decision a marketing company should take into account the following factors:

(1) Cost of the Product: No marketing company can afford the luxury of ignoring the cost of product. Cost of the product includes variable cost e.g. cost of raw material, labour charges, power expenses etc. and fixed cost. Cost of product is the major guiding factor in pricing decision.

(2) Life-Cycle of the Product: In the introduction stage price of the product may be kept lower to generate demand. In growth stage prices may be increased and in maturity and saturation stages again the prices may be reduced to revive demand.

(3) Product Substitution: If substitutes of company’s product are available in the market, it will be wiser to keep price low. In case if substitute product are not available, then firm can fix higher prices for its products.

(4) Elasticity of the Demand: Elasticity of demand plays an important role in pricing decision. In a situation of perfectly inelastic demand, where demand has no linkage with increase or reduction in price of the product e.g. in the case of salt, a company can take benefit of pricing decision in the case of elastic demand or in highly elastic demand situation of product where the reduction in price may increase the demand for product.

(5) Competition Policy: The competition policy of a marketing company may be a price competition or non-price competition policy. In the case of price competition Policy Company will keep competitive prices of its products to face the threat of rivals. In the case of non-price competition, it does not bother for prices and generates effective differential values and brand image of its products.

(6) Marketing Objectives: Pricing decision are also affected by the marketing goals and objectives of a company. If the objective is to capture maximum market share, the company will set low price of its products for the purpose of market penetration. It happens when firm’s marketing objectives is mass marketing.

(7) Channels of Distribution:  At the time of determination of prices for its products a company should take into consideration the channels of distribution used to deliver goods to ultimate consumers or industrial users. The number of middleman used, their commission or profit margin, rebate for their services and cost of physical distribution should be taken into account at the time of price determination.

(8) External Environment: External environment also plays its role in pricing decisions. The prevailing social, cultural, political, economic environment of a country and global economic conditions have an immense effect on pricing decision of a marketing company.

(9) Consumer Profile: Consumer profile of target of a company also affects pricing decision. Consumers tastes, aptitude, educational levels, income, personality characteristics etc. should be taken into account at the time of pricing decision. Keeping in view consumers profile a marketing company can effectively use market segmentation and may present different product to different market segment.

(10) Government Policies Rules and Regulations:  Government policies, rules and regulations have their vital role in pricing decision. For example, the central budget is a major policy declaration of the government. Declared excise rates and custom duties, legislation to safeguard public interest directly affect price.

(11) Competition: Marketing Company, having virtual monopoly in its product or service category, will set high prices. In the case of stiff competition the firm is bound to set competitive prices of its products or services.


(12) Type of Product:  Marketing Company, which is positioning an “innovative product” in the market, can set high prices of its products. An innovative product is the product, which is the totally new product to the market, and customers have never seen that earlier. The company can be done.

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