Factors affecting price decision Introduction Price decision is a critical part of the market and affects the overall sales of the products and consequently the company’s revenue. Managers set commodities price to maximize short-term gains or long-run share of the market or to prevent entrance of competitors in the market. The price is set to match the product value received by customers and consumer price perception. For example, Macdonald’s in India put high cost on its products and everyone think that anyone who visits the food joint is rich whereas in Saudia Arabia, the cost is cheap.
This paper presents an analysis of internal and external factors affecting pricing decisions. Internal factors affecting price decision These are factors a company has full control of including altering them; they result from the action and decision it takes and include the following: Market objective Companies set low prices to cover part of fixed costs and variable costs for it to survive in the business. To become a leader in the market companies set the price as low as possible as customers would always go for the cheap.
This is evident in numerous Chinese companies selling cheap phones to African and Asian countries, making it hard for companies from Europe and America to have a substantial market share, in the cell phone industry. Cost When setting the price of the commodity, it is essential to consider the cost required to progress the manufactured goods to the market. These costs are the production costs, marketing cost, administration cost of the company and distribution cost added in determining the final product price. This is applicable to all companies as none seeks to make a loss. External factors affecting price decision These are factor a company cannot control, but they influence price decisions.
These factors include: Competitors A firm pricing decision is influenced by how their rivals price and trade their products. For a company to retain a reliable customer base, it has to match their rival’s prices; for example, Timberland outlet give discount for customers to retain and win customers from its competitors. Government regulation Regulation of price may come from the government and if not followed may bring lawful consequence. For example, government set price ceiling in some companies and price floor in others (Gijsbrechts 1993).
For example, in New York, apartment rent and gasoline price ceiling exists to avoid consumer exploitation. Conclusion When setting the price of the commodity companies should put in consideration the internal and external factors. Both factors help in the setting the right price for the product, enabling a company maintain its market share and retain its existing customers by not overcharging them or running at a loss. References Gijsbrechts, E. (1993) ‘Prices and Pricing Research in Consumer Marketing: Some Recent Developments’, International Journal of Research in Marketing, vol. 10, issue 2, no. 11, pp.