Factors that affect commodity prices. The pricing decisions for a product are affected by internal and external factors. High Supplies- When supplies are high, prices drop in the case of commodities but in the case of FMCG, the marketing manager will offer consumer promotions and hold the price levels. If the firm expects higher price per unit of the product, they may charge a higher price for the product. There are several factors that impact the pricing decisions of an airline. It is seen that many products are sold at low prices, mostly in the initial stages. Product differentiation 2. Cleveroad Blog Client Guides Software dev cost . The customer can accumulate these points and then either take a discount when purchasing the service the next time or get gifts worth those points. (11) If the brand is very popular among consumers, the manufacturer can charge a higher price for the product. Everything has a price. Only In-the-Money Options have Intrinsic Value (explained below). If there are no ready takers for the product, it is said to have failed in the market. Essential determinants in terms of price increase or decrease; Resellers. Factors Affecting Pricing Decisions (15 Factors): (1) Objectives: Many companies have established marketing goals or objectives and pricing is based to achieve such goals. In business economics, if demand exceeds supply, there tends to be a mad rush for the few available products, thus inflating the price of the product and vice versa. To gain market share as much as possible, the organisation has to constantly strive to gain more customers. But at the same time, he should not fix a too low price as people will suspect that the goods are not of high quality. Depending upon the product and market conditions, the manufacturer can decide to offer price discounts and allowances to the customers which are a part of negotiating the purchase deal with various customers. If the company fixes a price that is much higher than that of the competitors, then people would not be attracted towards this product. Think about the difference between Revlon and Chanel, the two could make the same perfume but you would never expect to pay the same for both. As already pointed out, the firm can reduce the price, if it can reduce the cost of production. g. Cosmetics being promoted through beauty parlours need to be given with higher discounts to the parlour owners. 5 (1 Ratings ) Solved. The actual mechanics of pricing are dealt with at lower levels in the firm and focus on individual product strategies. Understand the factors that affect a firm’s pricing decisions. At times they are called ‘built-in factors’ and these are costs and objectives. The management sets the price in relation to costs and the attractiveness of the target market like, customer’s ability to spend, demand, competition. In geographical pricing, different prices are planned for different geographical regions. Content Guidelines 2. So the pricing decisions of suppliers have direct impact on the pricing decisions of the firm. are other considerations which also affect the pricing of the products. In case the product is for middle class and there is high competitiveness in the market, the firm will fix a lower price. Price elasticity of demand of the product. The factors that can influence price decisions may be divided into two groups: They are generally within the control of the organization. when an organization selling coconut hair oil adds paraffin to it in equal quantity, the price of the final product should drop as paraffin is priced much lower than coconut oil. Credit/debit cards, hospitality, chain stores etc. The longer the chain of distribution, the higher is the margin added to cost in fixing the price. Some firms allow workers’ participation in decision making and therefore in such firms, all the employees give their views and suggestions for the pricing policy. Add training of operators @ Rs. For example, Grade I restaurants will charge high price for all the dishes while Grade V will charge the lowest. If the product idea is acceptable, he can have premium pricing strategy to skim the market till such time that competition sets in, when he can reduce the price to make market entry difficult for competition. A strategy of high prices coupled with heavy promotional expenditure in the initial stages has been proved successful in a number of cases. Some organizations had tried to use geographical pricing which led to confusion in the minds of customers and resulted in the loss of sales. 1,680/-. In this method, the manufacturer decides the quantum of profit he wants to earn and sets the price based on expected sales levels. The price of the product depends upon the characteristics of the product. This helps him attract more customers as the customer effectively sees the product dropping, as additional benefits in terms of promotions come with the product. Disclaimer 8. It includes direct price controls through statutorily fixed maximum selling prices as well as indirect pressures to hold the price line at certain levels. Pricing also has to be consistent with the overall objectives of the firm. Multiplex tickets are cheap in the mornings and costly for night shows. Stay tuned for a deeper analysis of the trends in a special commodities feature, which will be included in next month’s World Economic Outlook. Status Quo- In this objective, the marketing manager maintains price levels in comparison to competition and holds on to the market share without losing it. All these factors determine the upper and lower limit of price. to the distributors and dealers. The price factor which may be ignored initially would become important when the product becomes an ordinary one because of being in constant use. 6) Suppliers – The price at which the raw materials are bought from the suppliers, and changes in the same by the suppliers also affect the pricing decisions. Privacy Policy 9. d. Local Promotions Allowance: Many organizations offer local promotional allowance that is linked to the value/volume sales of a particular product. In such a pricing, all the pricing elements are quoted differently along with the base price. Several factors influence the pricing decisions of a firm and they can be divided into two broad divisions, namely internal factors and external factors. Besides the above, there is also the number of factors which affect the pricing decision of a product, such as 1. For setting a price of a new product, three points are to be considered: If the product is entirely NEW in all respects, skimming method could be used. are taken into account while fixing the price. Multinationals are happy if the product achieves breakeven in five years. For instance, an organization has set a goal to produce quality products, thus, the prices will be set according to the quality of products. The marketer should know the factors that influence the pricing decisions before setting the price of a product. • What are the basic factors that affect price in any market? On the basis of the marketing objectives, the pricing policies are adopted. Moreover, there are some estimation examples of different apps. In a restaurant, places with a view or privacy are separated and are charged a higher price. Pricing policies are the internal factors that influence pricing. Image Guidelines 4. (e) Strategy to Fight/Take Advantage of Local Competition: Organizations can have a different pricing structure as a strategy to fight competition in a particular location. Furthermore, today, on account of the various lines of production as well as distributing, the overhead costs finding the cost of production is not so simple. The marketers should set the prices as per the organizational goals. Another significant internal factor affecting pricing decisions is the organisational structure of the firm. For example. Promotional pricing is defined as lowering of the price of a product temporarily to attract more customers and increase sales efforts. For example, an entrepreneur needs to pay wages to labor, rents for availing land, and interests for capital so that he/she can earn maximum profit. So the definition of price is the amount of money the buyer will pay as consideration to the seller in exchange for goods or services. Travel service organizations especially airlines give these mileages travelled by the customer. This is one of the reasons why the industry chooses to be close to the source of raw material, if the quantity of raw materials required is substantially high. price factors and non-price factors. The difference can be in terms of its features, positioning, design, shape, etc. Having a pricing objective isn’t enough. In such conditions these companies offer them a minimum ROI guarantee and ask the sales staff to prepare a report every month and raise a credit note whenever the earnings are less than guaranteed. For example –. Sometimes the opposite also takes place. Quantity Discount- Any customer who is purchasing a quantity more than a stipulated quantity, is offered discounted pricing to motivate him to keep doing so. What are the three basic factors affecting price in any market? Because of these costs, it sometimes happens that the price of the product becomes so high that the consumer rejects it. Internal factors affecting pricing decision Generally, internal factors can be controlled or altered. Stock prices are determined in the marketplace, where seller supply meets buyer demand. 5. Market Entry Pricing (Market Penetration Pricing): When the market has strong competition with very high market share, it becomes difficult to attract the customers towards a new product with ‘me too’ qualities. These factors are generally beyond the control of an organisation, but they have to be considered. A firm also has to look at a myriad of other factors before setting its prices. For example, when BOOST was launched, it talked about being ‘more creamy and more chocolaty’ and so was launched at a premium price even when the competitor Bournvita was holding a near 100% market share. Arriving at a pricing decision requires effective analysis of costs, demand and competitor strategy. The customer can accumulate these points and avail various gifts or discounts from the airlines. This is seen in the case of undergarments, textiles, hotel rooms etc. Lorem ipsum dolor sit am . The following are some of the reputed market research agencies-. We pay for house rent, we pay for taxi, if need a laptop we must pay to buy it. The marketing manager decides to sell the product at an average price of the similar products available in the market. Factors affecting tourism demand can be divided into two categories i.e. Finally, the presence or absence of competitors directly affects a company's flexibility with prices. 10) Target market attractiveness and economy – The spending power and types of customers (early adopters, laggards, etc.) But the cost of production can be reduced, by co-ordinating the activities of production properly, the firm can reduce the price accordingly. If you decide to sell your product via a third party reseller, or middlemen such as wholesalers and retailers, then the success of your marketing is going to be highly dependent on them. Since the market is starved, acceptance will not be difficult. ii) Marketing mix: one of the key elements of marketing mix is price. Factors affecting pricing policy are divided into two parts: (I) Internal factors. Over-all price strategy is dealt with by top executives. These visual publicity allowances can be used in various ways by the channel partners. Price, product, promotion and place are the four ‘p’s of a marketing mix. The most important factor is the cost of production. To enter the market, he needs to use Product Differential Policy where he gives the customer the same product with a big difference and more benefits. Payment Policy Discount (Cash Discount)- In industrial sales, most of the customers have a policy to pay the suppliers after 90 days. ADVERTISEMENTS: Figure-2 shows the factors that affect the pricing decisions: Now, let […] Here the marketer needs to decide whether to enter the market and fight competition to gain market share. Discuss Price Changes by an organisation and how organisations respond to competitor’s price changes. For example, when Videocon entered the refrigerator and other products market, it had a cost advantage of ‘Tax Holiday’ for fifteen years because the factory was established in the economically backward area of Ahmed Nagar district. It affects prices significantly. Factors that affect the price and outsourcing software development costs are provided in our article. The manufacturer can offer various discounts that can be listed as follows: i. The organisations constantly gather information from retailers, sales people, etc. This way, the channel partner ensures safe transit of goods and a little extra money for him by way of keeping the transit damages lower than the allowance paid. Explain New Product Pricing strategies or, Explain Skimming Pricing and Penetration Pricing strategies. The company was asked to cancel the offer and was also punished for wrong trade practices. This also affects the pricing decision of a firm. Question # 00644761 Subject Marketing Topic Marketing Tutorials: 1. Government controls regulation or pressures on pricing. Mark-up pricing method is used for commodities in India by traders where they add all the costs to the purchase price (storage, inventory cost, damages caused in storage, thefts, insurance etc.) These factors of production directly affect the production process of an organization. Market and demand: cost set the lower limit of the price. Pricing policies and strategies must be in conformity with the firm’s pricing objectives. Now, let us discuss the factors affecting the pricing decisions briefly: It affects the pricing decisions to a great extent. The reason behind this is due to the saving on import duties and transportation costs. 8. Objective pricing is basically simple and that is to earn maximum profit by selling the product. Other than these factors, there are few other things which will affect the cost of an apparel product directly. This is helpful to the firm if the firm has several products, requiring frequent pricing decisions and where prices differ in different markets. Internal Factors: 1. Copyright 10. (ii) It determines the amount of the revenue of a firm. Basically, this kind of price adaptation is a part of industrial/institutional selling practices where pricing is a part of the negotiations of the supply contract. This is known as prestige pricing. The following pricing decisions are found to be in force: Organizations work for the single most important objective of making profit and lots of profits at that. (d) Marketing & Sales- Identification of customer wants/needs, creation of sales through proper promotional activities. To quote one case, Nestle has advertised that they are giving one Kit Kat chocolate free with another product of the company, the MILO beverage. But not giving regular service coverage to the retailers/customers can lead to competition gaining advantage and loss of sale permanently. In the country like India, the state exercises a lot of influence on price decisions in respect of a large variety of products. Earlier, the tax structures in all the states were different for different products and that led to products moving from one state to another without any papers and people making money with complete loss to the state government whose taxes were high. These coupons can be directed towards a particular product/particular company’s products or any purchase in the particular stores. Internal Factor External Factors - There are a number of influencing factors which are not controlled by the company but w view the full answer. i. 3000 and get 30% off). Organisational Factors: Pricing decisions occur on two levels in the organisation. Offered Price: $ 8.00 Posted By: rey_writer Posted on: 01/31/2018 01:26 PM Due on: 01/31/2018 . Another factor that influences pricing is competition. The first is product cost, which establishes a price floor, or minimum price. Option Premium is the value we get by subtracting the Intrinsic Value of Option from the Current Market Price of that particular Option. Demand and supply play a major role in pricing of gold. Further external forces influence the price: 2. b. The firm has certain objectives long term and immediate in pricing. 7) Buyers – The buyer behaviour of the target market also has a great influence on the pricing decisions. (i) Procurement- Purchasing inputs such as materials, supplies, equipment. For instance, an organization has a pricing objective to increase the market share through low pricing. 9) Competition – The pricing strategies of competitors affect the product pricing decisions. E.g. The organisation invests and makes changes in the product via differentiation (to prove product uniqueness), promotion and distribution (place) to counter competition. But the customer perceives the free pack’s value as the rate he/she would purchase it. Having a pricing objective isn’t enough. If your product is the market leader, you can maintain premium pricing to earn more profits than the competitor as the customers are willing to pay premium for the popular product. If let’s say, a certain retail seller has a strong reputation, it will pass on to your product.  Marketing Mix  Organizational decision making and implementation  Product differentiation  Product life cycle  Distribution Network  Suppliers  Buyers  Demand  Competition  Target market attractiveness and economy  Government regulations  Ethical constraints 2. 3. An organisation serving the same target market eats into the market share of the organisation. Organizational policies: Organizational policies provide guidelines for taking decisions. They supply the required items of production to the firm. (i) Demand – In a consumer-oriented market, the consumers influence the price. a. There are many factors that affect the price of a stock, The most basic factor is investor perception. The sales person who negotiates the price at the highest level with maximum quantity is then rewarded in terms of incentives. Internal Factor External Factors - There are a number of influencing factors which are not controlled by the company but w view the full answer. ii. Cost: While fixing the prices of a product, the firm should consider the cost involved in producing the product. But in actual effect, the coconut oil with paraffin sells at a much higher rate than pure coconut oil as consumers perceive its non-sticky quality at a much higher rate. Change in promotion or distribution network will add to costs. Proper adjustment should be made for regular or irregular rebates, concessions, cuts or other reductions in prices, allowed to customers as an incentive to promote sales. Steady Supply- When the supplies are steady, prices remain steady. Again the marketer will be required to sell the product at a high price to cover extra marketing costs for concept selling. This cost includes both the variable and fixed costs. For example, women customers are allowed free entry for all sorts of dance parties and discos while male customers are required to pay a high entry fee. So the internal factors are within the control of the management and are particularly related to the internal environment of a firm. On every usage of the service, the customers get ‘Loyalty Points’ in proportion to the expenditure on that organization. Superior Quality Image (Premium Pricing): If the marketer can create a superior product quality image for the product, he can go in for premium pricing where the marketer can say that the ingredients are of superior variety and give better benefits to the consumer that suit the premium price. The market is flooded with too many products, both Indian and foreign. Current supplies can be of three types normally as follows-. Change in channel structure affects the pricing to a great extent as there are profit margins of the channel partners and depends on the number of channel partners between the manufacturer and the customer (levels of distribution channels). For example, HUL (Hindustan Unilever) has bathing soaps targeting different customers which are priced differently basis their uniqueness. They determine the basic ranges that the product falls into in terms of market segments. Every customer participating is given discount coupons and the winning customer gets a bumper prize. between major cities in a large country. If the targeted sales are achieved, the manufacturer gets his targeted profit. The variation in tax rates leads to differences in the final consumer price for commodities and illegal border crossing of products in packaged commodities (FMCG). Depending on the price changes by competitors, the firm adjusts the price of its product to stay, survive or maintain leadership in the market. vi. The marketer should know the factors that influence the pricing decisions before setting the price of a product. The government has the power to regulate the activities of business firms, so that they do not charge high prices and don’t indulge in anti-social activities. Thus the organisation has to make changes to the price basis the majority of buyers in the target market. ii. Price discriminations are seen during various timings. 8. What is the importance of data in marketing? In the off-season, discounts are offered for various goods and services and in the peak season the rates soar to the highest level. Product Cost 2. What considerations enter into the pricing decisions? The current players then were Godrej, Kelvinator, Voltas and Alwyn etc. What are the Key TQM (Total Quality Management) concepts and tenets? Sometimes, a higher price may itself differentiate the product. Factors related to the personal affairs or internal affairs of a country that affect the economy of the country participating in the international marketing are considered as domestic factors. There are several factors a business needs to consider in setting a price: Competitors – a huge impact on pricing decisions. Your strategy or your angle will make a huge difference to how you price yourself. • What are the basic factors that affect price in any market? The marketing manager may not change the price after entry of the competitors, but offer high consumer Pull promotions to maintain sales volumes, making it difficult for the competitors to establish themselves. 4. The marketer can come with product differential policy and charge a higher price but then he will be required to spend a lot of money educating the customers that his product is better in quality than the competitor’s and so they should pay more for his product. Pricing isn’t always as easy as setting a price the seller hopes to obtain. Factors that affect the market price of goods include supply, demand, competition and substitutes. The buyers can influence price decrease by majority of them not buying and giving negative feedback about the price to the distributors and sales people. If economic condition is weak, the prices are usually set low. Penetration pricing is intended to help the product penetrate into markets to hold a position. The Marketing Policies Pursued by the Sales Organization: 6. Survival- In this case, the organization lowers its prices to survive the onslaught of the competitor as a short-term strategy or sometimes long-term objective to keep getting sales, maybe at lower profits. This is the big one, because nothing adds to an airline's cost of doing business like the price of jet fuel. External Factor 2. To avoid competitive pricing, a firm may decide that its product may be sufficiently different from that of the others. Every product has some utility for the buyer. View Solution. Price discrimination/differentiation can be on the following points: Discrimination based on the quantity purchased is a common method. While shopping and speciality goods have a significant effect on sales volume and that. Airport lounges, railway platforms, shopping malls, multiplexes etc. Tutorials! ” or price Cutting established, one can do research on the quantity purchased is a strategic decision by. 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2020 what are the basic factors affecting pricing?