Important factors for Setting Price

Important factors for Setting Price

The following are important factor for setting price

1.Demand for product

Normally high demand for a product attract high price but this concept is not taken in isolation there must be limited supply of product. similarly if there is more supply then demand then prices will decrease. This change in price is called price determination by market force.

2.Profitable Objective

The other important factor is the profit objective of the organization. if an organization is interested in making high profit in short run then they may add high profit to the product cost .The profit objective vary from company to company and situation to situation.

3.Cost of Product

The cost of product is off course is important factor. The organization want to make at least some percentage of profit . The cost play important role to determine the selling price after taking into account desired profit level. This is the reason that in inflationary economies the price are changing regular as the cost of product increasing and to compensate that company have to increase the price.

4. Availability of substitute product

if the substituent product is available then producer will not go for unreasonable increase in price because of fear of switching of customer to substitute product. The important example is that if there is a sharp increase in the prices of diesel cars the buyer may start buying petrol run cars.

5. Nature of the Market

The nature of the market is also important determinant of price for example in monopoly situation where there is not competition . The producer can charge any price to the customer without any fear because there is no other option available to customer except to buy  your product.

6. Product features or Quality

The product feature will also determine the prices . for example a a mobile phone with high resolution camera will cost you more. in simple words the premium good are sold at higher prices. The product will simple feature will have lower price and product with more features will have higher prices.

Some market is ready to pay high prices for improved quality. the quality can be real and perceived. The real quality mean that a product is using better material and giving high performance or give more comfort to buyer. The perceived quality is however charging price for brand name otherwise the same quality product are available at lower price.

7.National Economy and prices

if the economy is growing there is tendency of high prices because the demand for the product is high in the growing economy and high demand attract high prices. in case of recession economy the prices are low due to low demand.

8.Customer Income and prices

The customer income also play role in price determination of product, in case of high income areas the prices are at high side and in case of low income of customer the prices are set on lower side.

9.Prices offer by the competitor

You have to live in the business world and you have to maintain a market share. so you can not leave the market for your competitor . The competitor prices play important role to determine the price of your product. for example a competitor is offering $ 10 and you are offering $15 for a same kind of product then there is a fair chance that you will loss the market share.

10.Product life cycle

The product have different stages and each stage have different pricing strategy. for example some companies want to maximize the profit in the initial stage of product launch . Therefore they charge highest price in the initial stage.

11.Price marker and Price Taker

There are two kind of companies in the market one which dominant the market termed as price maker . The price of the product is defined by the price maker and other follow the price set by the price market. The competitor or stakeholder who follows the price is known as price taker.

12.Product life cycle and pricing

a.Introduction 

The most company go for high prices at the introduction stage as there is no competition in the market and the company want to maximize the profit .


b.Growth Stage 

 In this stage new competitor are entering the market and the objective is to maintain or maximize the market share therefore prices have downward tendency. however if there is no threatening competition in the market and the company is market leader then the prices will be on high side.

c.Maturity Stage 

in this stage the demand is not growing therefor to maintain the share in the market the company will normally reduce the prices.

d.Decline 

 Demand is declining and it is difficult to maintain the desired profit level therefore there is tendency of lower prices to raise demand. There may be short term increase in prices because many competitor is leaving the market due to low demand.

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