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Internal Factors That Affect New Product Pricing

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Internal Factors That Affect New Product Pricing

Page 1 of 4
The customer’s perception of price, usually based on perceived value and cost are external factors that influence price. These factors are precipitated on reference prices either from previous purchases, reference from other users, real or perceived quality of a good or service amongst others. Internal pricing factors are the firms pricing objectives which eventually lead to adoption of price method or methods.

The organization has some measure of control over the internal pricing factors. Kotler & Keller buttress this point by emphasizing that the firm must decide where to position its product on quality and price (Kotler & Keller, 2009, p.423). The internal factors affecting pricing include price objective, demand, cost, competitor’s price and offer, and pricing method. These internal factors can be further explained when considering the pricing of a hypothetical new specialized electronic product.

• Pricing Objective – The clearer the firm’s objective, the easier it is to set price (Kotler & Keller, 2009, p.423). An organisation can decide to position its market offering for survival, maximize current profit, target the maximum market share, maximize market skimming, take product quality leadership or aim at partial cost recovery as evident in the case of non-profit organizations.

For our new electronic product, the production firm can maximize market skimming on initial product launch especially if the product is built on an innovative technology. This can be done in conjunction with pricing to maximize its current profits working on the assumption that it does not have competitors to match its offering. In the event that it has competitors or new entrants, pricing to gain maximum market share can e implemented.

• Demand – Depending on the price sensitivity of the product markets, the positioning of the organizations’ price offering may affect its demand. Demand sets the ceiling or upper limit for price.

Assuming our new...