10 Major Factors Affecting Pricing of Product (Explained)

Price policies provide the guidelines within which pricing strategy is formulated and implements of product.

Factors Affecting Pricing of Product
Factors Affecting Pricing of Product

Factors Affecting Pricing of Product

There are a number of factors that might influence price or Factors Affecting Pricing of Product. These may be grouped under the following.

1. Objectives

Pricing objectives are the overall goal that describes the role of price in the organization long-range plans.

The company fixes the price of a product on the basis of its pricing objectives which are framed within the framework of Corporate objectives.

The pricing objectives describe the company’s goal in relation to pricing.

Accordingly, the price policies and strategies are formulated and the price of a product is determined.

The common pricing objectives of a company are given ahead:

  • Maximization of profits
  • Securing a high market share.
  • Meeting or preventing competition.
  • Stabilization of pricing.
  • Providing a due return on investments.
  • Securing better interest of consumers.
  • Survival of the company.
  • Good cash flow.
  • Maintain loyalty of middleman and get their sales support.

The pricing objectives of the company to plan price strategies.

Related: 18 Reasons and the Importance of Product Innovation (Explained).

2. Costs

Cost and price of a product are closely related to each other.

In the past, the price fixing was a simple affair, just add all the costs incurred and divide the final figure by the number of units produced.

After adding necessary profits with the cost of production, it would give the price at which the products would be sold.

However, the main defect of the system is that it disregards the external factors particularly the demand and the value placed on goods by the ultimate consumer.

Whatever may be the cost of production, the price is one at which the seller is prepared to sell and the buyer is prepared to buy.

3. Elasticity of Demand

There is a close relationship between the demand and the price If the demand increases the price of the product will also increase.

On the contrary, if the demand decreases the price of the product will also decrease.

Hence the company should keep the elasticity of the demand factor in mind while fixing the price of a product.

Related: 14 Essential Features and the Importance of Product (Explained).

4. Competition

Another factor that influences pricing is competitive. No manufacturer or the producer is to fix his price without considering competition unless he has a Monopoly.

The company can fix the price of his product equal to or lower than that of the competitor’s price provided the quality of the product, is in no way, lower than that of the competitors.

Even in monopolistic conditions, the manufacturer or the producer will have to consider the competition with that of substitute products before fixing the price of his own product.

5. Distribution Channels

Distribution channels also affect the price of the product. A long range of distribution channels exists between the manufacturer and the ultimate consumer.

Each of them has to be compensated for the services rendered by him.

This compensation must be included in the ultimate price which the consumer is required to pay.

If due and attention are not given on the factor, it might happen that the price of a product may become so high that the consumer might reject it.

Related: 15 Factors that Affecting Market Segmentation.

6. Buying Pattern of the Consumer

Buying the pattern of the consumer also plays an important role in the pricing of the product.

factors affecting price determination
factors affecting price determination

If the Purchase frequency of the product is higher, lower prices may be fixed to have a lower profit per unit resulting in higher sales along with higher lower overall total profits.

Almost all consumer items of daily use have high purchase frequency, such as Oils, soaps, clothes, food items, etc.

On the contrary, low-frequency products are sold at high margin profit and, therefore, at high prices, such as TV, Refrigerator, air conditioners, cars, etc.

7. Economic Environment

The economic environment of the country is an important factor affecting the pricing of a commodity. In the boom period, high prices may be fixed so as to cover the increasing cost of production.

On the contrary, in the recession period, prices are reduced considerably is so as to maintain the level of turnover of the product.

Related: 7 Simple Tactics for Writing Powerful Advertising Copy.

8. Market Position of the Company

The market position of the company or the image of the company in minds of consumers as to Goodwill for the quality product etc may also influence the pricing decision of the company, such as Tata, Godrej, Apple, Google, Samsung, etc.

9. Government Policy

Government inference in the form of taxes and fixation of the price is also an important factor which influences the pricing of a product considerably.

Government not only levies various types of taxes such as exercise duty, sales tax, etc. But also fixes the maximum selling price of a product.

In case the company charges higher prices as compared to the prices fixed by the government then the legal action may be initiated.

Not only this but sometimes the government also starts selling certain products through fair shops, such as sugar, cloth, etc. 19 Factors Influencing Entrepreneurship Development.

10. Miscellaneous Factors

Besides the above, there is also the number of factors which affect the pricing decision of a product, such as 1. Product differentiation 2. Social and ethical consideration, 3. Product’s stage in the life cycle etc.

Thus, now know the Factors Affecting Pricing of Product.

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