The top management should work in coordination with the lower management for making an effective pricing strategy. The channel partner gets motivated to sell the organization’s products over and above those of the competitors. iv. Travel service organizations especially airlines give these mileages travelled by the customer. Governmental Policies and Legal Restrictions: (b) Current Supply of the Product from Various Sources: Essays, Research Papers and Articles on Business Management, Price Determination: 6 Factors Affecting Price Determination of Product, Pricing of Products: Meaning, Objectives and Methods, Pricing Objectives of a Firm | Elements | Marketing Mix, Pricing over Product Life Cycle | Business Marketing, Factors Influencing Price Determination: Internal and External Factors. Not Adequate Supply from Few Competitors: The competitor can enter the market with the ‘ME TOO’ pricing of the market leader. The factors influencing pricing decisions are divided into internal and external factors on the basis of whether the management has control over the factors or not. Senior citizens get fifty percent concession on all government owned transport like railways, state road corporation buses etc. Two categories of factors-internal and external factors influence the pricing decisions of any enterprise. Further external forces influence the price: 2. For example, the products in defense canteens are much cheaper because of the change in channel structure and the tax differences. 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. In case the product is for middle class and there is high competitiveness in the market, the firm will fix a lower price. This attracted the attention of the MRTP enquiry committee. Similarly, if the organization has a goal to increase sales by 18% every year, then the reasonable prices have to be set to increase the demand of the product. 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. Sales staff working ready stock has many inherent advantages. For example, if the price of cotton goes up, the increase is passed on by suppliers to manufacturers. 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. Request PDF | On Jan 10, 2015, Robert Azuayi published The basic factors that affect price in any market? The value of a given product to the consumer is the prime consideration. Change in promotion or distribution network will add to costs. Discount coupons are offered in various ways to customers and some of them can be as follows: a. For example, women customers are allowed free entry for all sorts of dance parties and discos while male customers are required to pay a high entry fee. f. Products being promoted at local clubs, restaurants exclusively require fees to be paid to the club/restaurant management. 4. Factors Affecting Pricing Decisions (15 Factors): (1) Objectives: Many companies have established marketing goals or objectives and pricing is based to achieve such goals. When Hindustan Unilever found that their volume sales were lower than Nirma due to non-availability of their products in the rural markets, they initiated rural promotional vans through their channel partners that demonstrated the product superiority of ‘RIN’ by showing promotional advertising films to gain rural market share. If there is no demand for the product, the product cannot be sold at all. Competitors may also appear in the market. In the consumer industry where MRP (Maximum retail price) is compulsory from the government authorities, the same price pan India becomes a rule. Most of the companies/channel partners avoid this process as it involves higher cost if not properly done. So the pricing decisions of suppliers have direct impact on the pricing decisions of the firm. Pricing policy should be established only after proper considerations of the objectives of the firm. along with the desired profit percentage before deciding the selling price. Thus, the marketers analyze the costs before setting the prices to minimize losses. This lowering of price is a temporary action. Thisstudy sought to explore the factors that influence pricing decision.The researcher conducted a systematic review of literature thatinvolved desk research on previous research works mainly contained inmarketing journals. Step-by-step answer. The organization will keep in view the prices adopted by its close competitors. Thus the organisation has to make changes to the price basis the majority of buyers in the target market. Depending on the condition of the demand, the marketer will decide the pricing strategy and promotion strategy. Giving free on-pack promotions is a very popular form of giving price offs. This compensation must be included in the ultimate price which the consumer pays. The organization may sell products at prices less than that of the competitors even if it is incurring high costs. The relative market shares (or market strength) of competitors influences whether a business can set prices independently, or whether it has to follow the lead shown by competitors Multinationals are willing to wait and watch for a longer period of time and are willing to keep spending money on new products for many years. The Utility and Demand 3. iii. But external factors are the forces outside the firm over which a business has not control. In India, most customers have this mentality. 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. There is always a chance that the competitor is pricing his products at a very low price as he is the market leader with a very large market share. But this distinctiveness created by novelty is only temporary. The marketing manager decides to sell the product at an average price of the similar products available in the market. The difference between local cash price and futures price is due to transportation costs, storage costs, supply and demand, local conditions, and other factors. A firm may have various objectives and pricing contributes in achieving them. But have you ever wondered about what drives the stock market—that is, what factors affect a stock's price? 3. i. Examples of Factors Affecting Pricing Decisions. 7) Buyers – The buyer behaviour of the target market also has a great influence on the pricing decisions. 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. At times they are called ‘built-in factors’ and these are costs and objectives. The pricing is based on the perceived value of the product by the consumers. For example, Grade I restaurants will charge high price for all the dishes while Grade V will charge the lowest. Marketing 9 Months Ago 30 Views. iii. Social and ethical consideration, 3. Another significant internal factor affecting pricing decisions is the organisational structure of the firm. What are the Key TQM (Total Quality Management) concepts and tenets? Internal Factors Affecting Pricing Decisions 3. i) Fabric cost: Fabric is generally the most significant factor in costing of garment. If let’s say, a certain retail seller has a strong reputation, it will pass on to your product. On the other hand, if demand is elastic, the firm should not fix higher prices, rather it should fix flexible (lower) prices than that of the competitors. For example – it has certain costs of manufacturing and marketing and it seeks to recover these costs through the price. Home » Trading » The Factors Affecting Option Prices Option Price involves two components – Intrinsic Value of Option and Option Premium. 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. This cost includes both the variable and fixed costs. (iv) Political and Legal Aspects – Government interference, such as control of prices, levying of taxes etc. Understand the factors that affect a firm’s pricing decisions. 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. We would like to divide them as Internal Factors and External Factors. Disclaimer | 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. Factors affecting Price of a Product The pricing decisions for a product are affected by internal and external factors. (i) Procurement- Purchasing inputs such as materials, supplies, equipment. Therefore, a marketer should adopt a well- planned approach for pricing decisions. E.g. There is a validity period/date on the coupon and after producing this coupon in a retail store, that much money is deducted from your purchase bill. Indian entrepreneurs look for breakeven to be achieved in a short period of a maximum of two years because there are very few Indian products which are launched on a large scale and become successful. Once current demand is established, one can do research on the current supply position. What are the basic factors that affect pricing decisions? The position of the firm in the market and the nature of prospective buyers will influence the price. For example. Gold is one commodity that is continuously in demand. are taken into account. 124228 Questions; 123349 Tutorials; 96% (5810 ratings) Feedback Score View Profile. (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. • What are the basic factors that affect price in any market? To avoid such incidences, most of the organizations interested in rural market coverage offer van working allowance to their channel partners. Because of these costs, it sometimes happens that the price of the product becomes so high that the consumer rejects it. iii. In a highly competitive market with many players, the marketing manager may use this pricing policy that helps him enter the market and establish its position. On the basis of the marketing objectives, the pricing policies are adopted. ii. What is Brand Loyalty and steps to increase Brand Loyalty? There are many middlemen working in the channel of distribution between the manufacturer and the consumer. Main factors affecting price determination of product are: 1. Factors affecting Basis. The nature and behaviour of the consumers and users, for the purchase of a particular product or service, do affect pricing, particularly if their number is large or if they perceive a product of better quality and a symbol of status and prestige. This is seen in the case of undergarments, textiles, hotel rooms etc. For example, when BOOST was launched, it talked about being ‘more creamy and more chocolaty’ and so was launched at a premium price even when the competitor Bournvita was holding a near 100% market share. When it comes to the psychological factors there are 4 important things affecting the consumer buying behaviour, i.e. Organizational policies: Organizational policies provide guidelines for taking decisions. Terms of Service 7. 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. (8) Availability of raw materials in the domestic market will generally enable the firm to bring down cost of production. A brand leader who is ruling with a high market share can decide to work on wafer-thin profit margins and sell the product at a very very low price, making the entry in the market difficult for new products (because of high investment cost and marketing cost to establish). The pricing policy of a firm must consider the other components of a marketing mix as well, because these factors are closely related. 11) Government regulations – The government regulates the prices of products through its various policies. Similarly, the marketing manager also helps and assists the top management in framing the pricing policies and strategies. The general price level is assumed to remain constant throughout the period so that the relationship between prices can be examined. If the supply is less than demand, then the price of the product will be more. If more sales are achieved, he gets more profits and if lower sales are achieved, he gets lesser profits. ii. The market demand for a product or service has a big impact on it pricing. The channel partner starts getting identified as an exclusive dealer of the organizations products. Depending on the distribution network, the organisations strategy will have a direct impact on the costs and pricing. International Marketing Tutorial 10 – Pricing and Promotion 1. For industrial and institutional products where there is no MRP, prices can be adapted in different methods. It is important to consider the channels for distribution selected to market the products. If prices are set high, a competitor will usually enter the market with a low priced product. One must keep in mind the fact based on the EASE and the SPEED with which the competitors can bring out substitute products. Internal factors affecting pricing decision Generally, internal factors can be controlled or altered. 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. Prices of food and rooms vary as per the quality gradations declared for them. In the off-season, discounts are offered for various goods and services and in the peak season the rates soar to the highest level. These price offs can be offered in different styles. The organisations cannot survive without proper coordination from the distributors. The suppliers of raw materials and other inputs can have a significant effect on the price of a product. are other considerations which also affect the pricing of the products. To quote one case, Nestle has advertised that they are giving one Kit Kat chocolate free with another product of the company, the MILO beverage. What considerations enter into the pricing decision? i. Each one of them has to be compensated for the services rendered. Price is the only element of marketing mix that helps in generating income. For example-. 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. There are several factors a business needs to consider in setting a price: Competitors – a huge impact on pricing decisions. Pricing policies and strategies must be in conformity with the firm’s pricing objectives. Price decisions are strategically taken in the following ways: When the competitor is stronger than your product and is the market leader with higher market share than your market share, marketing managers always follow the leader in pricing decisions and maintain the price parity. (e) Service- Customer support before and after the goods are sold. 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. Credit/debit cards, hospitality, chain stores etc. Factors that Affect Pricing . Thus, now know the Factors Affecting Pricing of Product. The channel partner can use this allowance for various local promotions that can be used to push the product sales considerably. (g) HR Management- Recruiting, hiring, training, compensation. vii. The marketer has to price the product in accordance with the pricing of the competitor. Factors Influencing Price Determination 4. We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. 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. In this situation, the saving needs to be substantial and attractive. The on-pack free offers are always procured by the marketer at a very low price due to the quantity discounts secured by him and the tax waiver on the free item being offered. In each of these categories some may be economic factors and some psychological factors, again some factors may be quantitative and yet qualitative. We pay for house rent, we pay for taxi, if need a laptop we must pay to buy it. Factor Influencing of Pricing Decision: Internal Forces and External Forces. BUSINESS M 200-What are the basic factors that affect price ; rey_writer. The regulatory pressures, anti-price rise and control measures by the Government effectively discourage companies from cornering too large a share of the market and controlling prices. Let’s look at some factors below: Demand and Supply: When there is a rise in demand for gold, the price increases, and vice versa. It involves finding I out cost per unit and adding necessary profit with the cost of production to arrive at the price. Think about the difference between Revlon and Chanel, the two could make the same perfume but you would never expect to pay the same for both. If the management has control over the factors, it will come under internal factors, if not it will come under external factors. Product differentiation 2. Pricing of competition plays a major role in pricing decisions. The organizations may offer fixed per day/route allowance every month or sometimes send their own promotional vans regularly to ensure rural market coverage and sales. Corporate and marketing objectives of the firm. It cannot exist independently. It influences the price setting decisions of an organization. in the target market also affects the pricing strategy. Getting very high profits is possible only if the product is essential and the organization has a monopoly. If the firm expects higher price per unit of the product, they may charge a higher price for the product. Further internal factors influence the price: 1. 5. This helps him attract more customers as the customer effectively sees the product dropping, as additional benefits in terms of promotions come with the product. These factors that affect pricing are discussed below- 1) Marketing Mix – Management can easily do variations to the price component of the marketing mix element. Normally these discounts are offered on service products. Several factors influence the pricing decisions of a firm and they can be divided into two broad divisions, namely internal factors and external factors. New Product Development Product and Product Strategies, Sales Force Management (Personal Selling), The Super Customer and Customer Relationship. External Factor 2. This return can be in the form of price appreciation or dividend income. For example, Maharashtra has very high VAT on fuel and truckers buy high quantity of fuel before they enter Maharashtra. This is achieved through methods of advertising, branding, etc. If the organization’s value chain is superior, the organization can also demand premium price for its products benefiting from both sides – (a) reducing the cost and (b) demanding premium price. Explain difference between wholesaler and retailers and their types. The actual mechanics of pricing are dealt with at lower levels in the firm and focus on individual product strategies. Internal factors affecting pricing decision. 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. when an organization selling coconut hair oil adds paraffin to it in equal quantity, the price of the final product should drop as paraffin is priced much lower than coconut oil. These coupons also need to be en-cashed in the next purchase within a given period of time. High Demand- When the demand is high, prices can be increased to get higher profits. There are many factors which we need to consider under each category. Toothbrush free with the toothpaste. Firms may pursue a variety of objectives, such as maximising sales revenue, maximising market share, maximising customer delight, maintaining a particular image, maintaining stable price, etc. Rectifying the settings to suit the purchaser. The pricing also depends on the analysis of value chain. b. For example –. Two, three, four units combined to get a price off. This blog seeks to explain how demand — but also supply and financial market conditions — are affecting metals prices. They then introduced lower priced products for rural markets – ‘Wheel’ and ‘Lifebuoy’ to regain market leadership in both urban and rural market. Factors Affecting Pricing Decisions (15 Factors): Factors Affecting Pricing Decisions in Marketing Management (Examples): 5. To avoid this, many manufacturers offer fixed or variable allowance to their channel partners towards appointment of interim coverage sales staff allowance. 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. One factor is competition. Similarly, five star hotels will charge the highest price while two star hotels will charge the lowest. New products appeal too many as novel items. dictum vitae odio. It can decide high price at a low volume of sales and low price for a high volume of sales. 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. 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. All these factors determine the upper and lower limit of price. ii. i. Depending on the demand, supply and competitor’s analysis, the marketer then selects his pricing method/strategy to decide the price and promotions. This is helpful to the firm if the firm has several products, requiring frequent pricing decisions and where prices differ in different markets. About Us | Over-all price strategy is dealt with by top executives. Actually, the company increased the price of MILO, by adding the price of a bar of KIT KAT to it. Videocon maintained its market leader position for many years till Whirlpool and LG dethroned it on the quality aspect. The method was introduced by Michael E. Porter who proposes that a superior value chain can lead to reduced costing and higher profits. Content Guidelines 2. Factor analysis was performed to identify the main factors that influence pricing decisions of building materials. What are the objectives of Pricing? Also discuss the variables/ elements of Price Mix. 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. The main defect with this approach is that it disregards the external factors, particularly demand and the value placed on goods by the ultimate consumer. to the distributors and dealers. Internal Factors: […] The marketer will analyze the competitor’s pricing policy to understand the reasons and objectives behind the pricing adapted by the competitor. The choice of segment also tells us the profile of the customer and the number of customers present in the segment in a given area. Learn how to calculate the breakeven point. The following are some of the biggest factors that insurers consider when pricing out their policies. By way of this, they ensure that channel partners appoint exclusive sales staff who give coverage to retailers/customers in absence of the company staff. For instance, an organization has a pricing objective to increase the market share through low pricing. Distribution channels also sometimes affect the price. Next Question . 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. Thus, marketing research and the marketing information system can be utilised to form the appropriate pricing policy. A consumer is someone who pays a sum to consume the goods and services sold by an organization. Add [email protected] 12% – Rs. These laws may lead to the fixing, freezing, or controlling of prices at minimum or maximum levels. In a depressed economy, business activities will be considerably less, but in a boom condition, there will be hectic business activity. Report a Violation 11. 6. Marketing, Products, Pricing, Factors Affecting Pricing Decisions. Essential determinants in terms of price increase or decrease; Resellers. Having a pricing objective isn’t enough. Pricing isn’t always as easy as setting a price the seller hopes to obtain. How Marketing and Human Resources benefit each other? Donec aliquet. iii. on the response of customers. If customers belong to elite class and competition is low, the firm may adopt skimming. The price of the product depends upon the characteristics of the product. Only In-the-Money Options have Intrinsic Value (explained below). This also affects the pricing decision of a firm. This is one way of ensuring loyalty towards the airline. Discuss Price Changes by an organisation and how organisations respond to competitor’s price changes. Steady Demand- When the demand is steady, prices are maintained at the same level as competition. Earlier, the tax structures in all the states were different for different products and that led to products moving from one state to another without any papers and people making money with complete loss to the state government whose taxes were high. ii. Factors Affecting Pricing Decisions in Marketing Management 2. Market research will let us know the consumption pattern of these customers and therefore the frequency of purchase of the product and the monthly expected demand for the product. The price factor which may be ignored initially would become important when the product becomes an ordinary one because of being in constant use. Answer to What are the basic factors that affect price in any market? But this is possible only when the product is backed by perfect quality. Moreover, these factors will change according to changing market conditions and will be different for each market. Many times when brand loyalty and product differentiation between competitors is low, the customer may purchase an alternate product and refuse to accept delivery of stocks ordered earlier leading to costs without effecting sales. In addition to all the internal forces mentioned above, any business firm has to encounter a set of external factors while formulating its pricing strategy. (i) Demand – In a consumer-oriented market, the consumers influence the price. Product’s stage in the life cycle etc. The marketer should know the factors that influence the pricing decisions before setting the price of a product. Content Filtration 6. Most important Factors affecting Pricing Decisions. For example, they can have a low price to fight competition or can have a higher price for taking advantage of not having competition (monopoly). Price structure of a product competitor ’ s price changes by an organization has a strong reputation it! 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