Price is of fundamental importance as it is the only mix element that actually generates income. But, before any pricing decisions can be undertaken it is important that the factors influencing price are understood. The following are factors which determine price setting:
Often are major factors in price determination. Pricing on the basis of cost is not a relatively simple procedure, especially in the absence of information on what customer might be willing to pay but suggest fairness and reasonableness. Products are usually priced after covering the cost of production, distribution and sometimes promotion costs. Costs are helpful in the following ways: in estimating how rivals will react to setting a specific price, in make or buy decisions and when differential pricing policy is followed
Usually there some predetermined objectives a company has when pricing their products. The company may set price having one of the following objectives; increase sales, acquire high market share, penetrating the market, maximizing profits, returning on investment etc
Pricing is influenced by past and current corporate philosophy, organization and managerial policies. Establishing or changing the basic price is essentially a function of top management. Also top management can determine what business the company is to be in. pricing cannot be divorced from product consideration.
The nature of the market determines upper limit for prices. The utility or value, placed on the product by the purchasers set the price ceiling. Factors such as demographic, customs, tradition and economic considerations, all of which are related to customer acceptance and use of a product. Diverse religions, difference in the cost of borrowing, varying altitudes on family foundation and living habits creates wide difference in the willingness and ability of customer to pay a given price.
While costs and demand conditions...