Factors affecting pricing decisions: the pricing decisions are influenced by the many factors. The price policies should be consistent with the pricing objectives. The influence factors for a price decision can be divided into two parts:
a. Internal factors and
b. External factors
Internal factors:
1. Organizational factors: pricing decisions occur on two levels in the organization. Overall price strategy is dealt with by top executives. They determine the basic ranges that the product fails into the terms of the market segments. The actual mechanics of the pricing are dealt with at lower level in the firm and focus on individual product strategies.
2. Marketing mix: marketing expert's views prices as only one of the country of the many important elements of the marketing mix. A shift in any one of the elements has an immediate effect on the other three - production, promotion and distribution.
3. Product differentiation: the price of the product also depends upon the characteristics of the product. In order to attract the customers, different characteristics are added to the product, such as quality, size, colour, attractive package, alternative uses, etc. generally, customers pay more prices for the product which is of the new style, fashion, better package etc.
4. Cost of the product: cost and price of a product are closely related. The most important factor is the cost of the production. In deciding to market a product, a firm may try to decide what prices are realistic, considering current demand and competition in the market. The product ultimately goes to the public and their capacity to pay will fix the cost, otherwise product would be flopped in the market.
5. Objectives of the firm: a firm may have various objectives and pricing contributes its share in achieving such goals. Firms may pursue a variety of value oriented objectives, such as maximizing an image, maintaining stable price etc. pricing policy should be estimated only after proper considerations of the objectives of the firm.
External factors:
1. Demand: the market demand for a product or service obviously has a big impact on pricing. Since demand is affected by factors like, number and size of the competitions, the prospective buyers, their capacity and their willingness to pay, their performance, etc. are taken into account while fixing the price.
2. Competition: competitive conditions affect the pricing decisions. Competition is a crucial factor in the price determination. A firm can fix the price equal to or lower than that of the competitions, provided the quality of the product, in no case, be lower than that of the competitors.
3. Suppliers: suppliers of raw materials and other goods can have a significant effect, on the price of the product. If the price of the cotton goes up, the increase is passed on by supplies to the manufactures. Manufactures, in turn, pass it on to consumers.
4. Buyers: the various consumers and business that buy a company's product or service may have an influence in the pricing decision. Their nature and behaviour for the purchase of a particular product, brand or service, etc. affect pricing when their number is large.
5. Economic conditions: the inflationary tendency effects pricing. In recession period, the prices are reduced to a sizeable extent to maintain the level of the turnover. On the other hand, the prices are reduced to size able extent to maintain the level of turnover on the other hand the prices are increased in boom period to cover the increasing the cost production and distribution.
6. Government: price discretion is also affected by the price control by the government through enactment of the legislation, when it is through proper to arrest the inflationary trend in price of certain products. The prices cannot be fixed higher, as government keeps a close watch on pricing in the private sector.