Discuss the factors that influence pricing.

Ans.

Factors that influence price determination are mentioned as under:

(1) Life Cycle of Product: Life cycle of a product influences its price to a great extent. The life cycle of a product has four stages. Introduction stage, growth stage, maturity stage and decline stage. When a product enters the market it usually undergoes these four stages. When the product is introduced in the market its price is generally kept low just to create demand for it. When its demand increases even then the prices are kept stable in an attempt to attract the customers to the brand. When the product reaches its maturity stage and there after decline stage the price should be reduced to keep the product exist in the market.

(2) Nature of the Demand of Product: The nature of product demand also determines the price of it. A slight change in price may result in sizeable change in its demand. If the demand of a product remains inelastic the price can be enhanced and additional profit can be earned. In cases where the demand is elastic the management must be very cautious while determining or making adjustments is price.

(3) Cost of the Product: The most significant is the cost of production. Then causes cost of marketing and cost of administration. The firm tries to recover the manufacturing and marketing cost (cost of advertising, distribution, sales promotions etc.) through the price. While fixing price the management must have full knowledge about the amount involved in channel management. The management must know the extent of intermediaries between the producer and the consumer and what are the financial implications involved by way of percentage commission to be paid to them. A long chain of channel intermediates means sizeable amount going to them as commission. While fixing price it is to be kept in mind that prices remain competitive even after considering the benefits of intermediaries.

(4) Objectives of the Firm: The firm has certain objectives to achieve like achieving a particular market share, profit maximisation, minimum return of sales turnover etc. While fixing prices these objectives are considered.

(5) Buyers Behaviour: While making purchase the buyer considers whether the value of product is worth the price paid by him. Therefore buyer’s bargain power determines the price. The buyer’s ways of thinking, ability to study things comparatively, habits, buying behaviour etc. are the factors that influence the price determination. For example an industrial or business buyer first tires to have full knowledge of the product and the producer, has ample deliberation and then makes purchase. On the other hand such deliberations and minute search is not made by the buyer of consumer goods, Therefore, a slightly higher price can be claimed from him.

(6) Competition: No manufacturer can afford pricing a product ignoring competition and particularly pricing policies adopted by the competitors for the substitutes. Competitors sometimes reduce their prices abruptly. This may have an adverse and immediate effect on sale of other manufacturers unless they do not make a necessary adjustments in their own prices.

(7) Advertising and Sales Promotion: Expenditures incurred on advertising and sale promotion also influence prices. Different ways of advertisements their kinds their rates all have bearing on prices. Competitive advertising affects prices adversely. So is the case of sales promotional activities.

(8) Government Policies: While determining price the policies of government are to be considered. Government makes laws and imposes taxes from time to time. Government has passed several ordinances in connection with prices of products and their distribution. These aspects influence prices.

(9) External Environments: These environments have direct influence on prices. Overall recession compels manufactures to reduce the prices. Sometimes government intervention in business to control prices makes the manufacturers to reduce their prices.

(10) Trade Customs: Prices are often influenced by trade customs. Manufacturers often guarantee after sale service on certain products. Sometimes manufacturers declare schemes like payments in installments. They incorporate expenses of such schemes in their prices.