7 important factors that determine the fixation of price are:
(i) Cost of Production:
Cost of production is the main component of price. No company can sell its product or services at less than the cost of production. Thus, before price fixation, it is necessary to compile data relating to the cost of production and keep that in mind.
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There are two types of cost: (i) Fixed Cost (e.g., Rent of building, Salary of permanent staff, etc.) (ii) Variable Cost (e.g., Material, Labour, etc.). At least the price should be able to recover the variable cost as the fixed cost is incurred whether the production takes place or not.
(ii) Demand for Product:
Intensive study of demand for product and services in the market be undertaken before price fixation. If demand is relatively more than supply, higher price can be fixed.
(iii) Price of Competing Firms:
It is necessary to take into consideration prices of the products of the competing firms prior to fixing the price. In case of cut-throat competition it is desirable to keep prices low.
(iv) Purchasing Power of Customers:
What are the purchasing power of the customers and at what price and how much they can purchase? It should also be taken into consideration.
(v) Government Regulation:
If the price of the commodity and services is to be fixed as per the regulation of the government, it should also be borne in mind.
(vi) Objective:
Usually, at the time of price fixation a certain amount of profit is added to the cost of production. If company’s objective is to earn higher profit it may add higher amount of it.
(vii) Marketing Method Used:
Price is also influenced by the marketing method used by the company, e.g., commission which is to be paid to the middlemen for sale of the goods is also added to the price. Similarly, if the customers are to be provided “after sale service” facility, then those expenses are also added to the price.
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The most important factor affecting the price of a product is the product cost. The same principle also applies in case of services. The product cost will be inclusive of the cost of production, the distribution costs and the selling and promotion costs. This cost will act as a benchmark for setting the price.
What are the 7 factors that affect price? ›
7 important factors that determine the fixation of price are:
- (i) Cost of Production:
- (ii) Demand for Product:
- (iii) Price of Competing Firms:
- (iv) Purchasing Power of Customers:
- (v) Government Regulation:
- (vi) Objective:
- (vii) Marketing Method Used:
Five factors to consider when pricing your products or services
- Cost of production.
- Competitor prices.
- Value proposition.
- Marketing strategy.
- Profit margins.
- Here are three common pricing strategies.
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The most important factor affecting the price of a product is the product cost. The same principle also applies in case of services. The product cost will be inclusive of the cost of production, the distribution costs and the selling and promotion costs. This cost will act as a benchmark for setting the price.
What determines factor prices? ›
Factor prices are determined by supply and demand: If the demand for a factor of production outstrips its supply, the price of the factor will rise. Conversely, if the supply of a factor outstrips demand, the factor price will fall.
How many factors affect pricing? ›
Those factors include the offering's costs, the demand, the customers whose needs it is designed to meet, the external environment—such as the competition, the economy, and government regulations—and other aspects of the marketing mix, such as the nature of the offering, the current stage of its product life cycle, and ...
How do you determine price? ›
How to calculate product pricing, step by step
- Add up variable costs per product. ...
- Add in your profit margin. ...
- Factor in fixed costs. ...
- Test and adjust accordingly. ...
- Understand common pricing strategies in your industry. ...
- Conduct market research. ...
- Experiment with pricing. ...
- Focus on long-term business profit.
To help determine your optimum price tag, here are five critical Cs of pricing:
- Cost. This is the most obvious component of pricing decisions. ...
- Customers. The ultimate judge of whether your price delivers a superior value is the customer. ...
- Channels of distribution. ...
- Competition. ...
- Compatibility.
7 Factors for a Good Pricing Strategy
- Competitor pricing. Before setting prices, you should do some market research to understand where your products and services fall. ...
- Cost of goods. ...
- Customer demand. ...
- Perceived value. ...
- Market conditions. ...
- Labor. ...
- Additional overhead.
Four Major Market Factors That Affect Price
- Costs and Expenses.
- Supply and Demand.
- Consumer Perceptions.
- Competition.
They believed that some consumers would aim and buy products that are low in price, regardless of quality, branding etc, and vice versa. All in all, the prices of a product can be influenced by four factors such as expenses and cost, supply and demand, consumer perception, and competition.
What factor is key to price determination? ›
Product cost is one of the most important factors which affect the price. It includes the total of fixed costs, variable costs and semi-variable costs incurred through the production, distribution, and selling of the product. Fixed costs refer to those costs which remain fixed at all the levels of production or sales.
What is an important factor that determines cost? ›
advertising and e. innovation, are important factors that help determine cost. For instance, the physical aspects of a product like quality and innovation significantly affect cost. Items with high quality and innovative features may be more expensive to create, thus possibly leading to higher prices.
What is the price determination? ›
Price determination is the process of how the forces of demand for goods and services and the supply of goods and services in a market interact to determine the price. The level of consumer demand for a product and the response, the supply of producers, play a critical role in determining the price of that product.
What are the 4 factors to be considered in pricing? ›
Product Cost. The Utility and Demand. The extent of Competition in the market. Government and Legal Regulations.
What are 3 different factors when deciding on how to price your products? ›
What factors should be considered when pricing a product?
- The total costs of running your business including fixed and variable costs.
- Competitors' pricing.
- Market demand.
- Target customers spending power.
- The value of your product.
There are three things to consider: your costs, value, and the competition.
