Factors Influencing Pricing Decisions
Pricing decisions may be influenced by internal factors such as costs and profit objectives, and by external factors such as competitor's pricing actions or regulatory pricing on profit guidelines. When one considers the various factors that determine pricing philosophy, and strategy one cannot help coming to the conclusion that there is a multiplicity of powerful factors with a direct bearing on pricing.
Apart from the factors shown in the chart, there are also other factors both internal and external by which pricing decisions are influenced. Some common factors among them that may influence pricing decisions are - type of industry, type of product or service, public image, regulatory pricing, profit guidelines, governmental influence, economic trends, etc.
Pricing decisions are not only influenced by some factors, but in their turn, also influence some factors. The price of a product plays an important role in the buying decisions and thus acts as a major influencing factor in buying habits.
The question arises that how do all of these factors interact and result in a pricing decision. The answer depends on the individual decision maker or the management making the pricing decision. Pricing variables are incorporated into the decision-making process in different ways by different decision makers. One person may weigh economic trends and industry averages heavily and may ignore government pressure for price restraint. Another may use government pricing guidelines as the primary variable in establishing new prices.
A purposeful approach must take into account all the variables and influencing factors and determine the right starting point (the pricing situation) for price policy. We must then develop pricing strategy and pricing tactics for making the right pricing decision in the business.
We have to categorize all the influencing factors and reduce what is a complex problem into one that is essentially three-dimensional. Then it is possible to identify the pricing situation of the business.
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