Question

Discuss the variable that influence pricing decisions (ie the variables presented within the pricing framework box)

Answer 1

There can be majorly two types of variables or factors that affect the pricing decisions:

1. Internal Factors

2. External Factors

The factors are further divided in avove two types:

1. Internal Variables -

a. Top level Management - Management philosohy has a direct impact on the pricing of a product. Marketing Manager is a top level management and whether the price is fixed or variable, equal or discriminative depends on the decisions of the top management. The philosophy f top level management is directly visible in pricing of a product.

b. Elements of Marketing Mix - The elements of Marketing mix, which are Product, Price, Place and Promotion states that all the elements for a product must be interconnected or ontegrated with each other. Hence, price must be integrated with the other three elements. Example - When heavy investments are made on promotions, the sales price of the product will go up to cover the costs.

c. Degree of Product Differentiation - Differentiation is the degree to which the product of a company is different from other products in the market. The more is the differentiation, more is the freedom to set the price of the products.

d. Costs - Costs include product develpoment cost, production cost and marketing cost. Costs and profits have a direct impact on the sales price of the products. The more costs leads to more price of the product.

e. Objectives - The objectives of a company is the factors which affect the price of the products. Example - Some companies' have an objective of non-profit organization, they work for least costs and prices would be low.

f. Stage of Product Life cycle - The price of a product is dependent on which stage of the product life cycle is it passing from. The prices at Initial stage may be lower than that in a maturity stage. The discounts are also decided on it.

g. Product Quality - A high quality product is sold at a high price while a low quality product at low price. Hence, quality of a product directly influences the prices of the product.

h. Brand Image - Brand of a product adds value to the product itself. Hence, prices would also increase. People pay more for a more recognized brand.

i. Category or class of the product - Imitative, luxury, perishable, consumable, durable etc are the categories of the product. Status, position and prestige are also the class. Prices are similarly decided.

j. Market Share - To gain the market share, prices are often reduced. Market share impacts the prices according to the decisions made by the company.

External Variables -

a. Demand for the product - Demand and price are inter-related however, demand is more powerful a factor, hence, prices are usually set as per the demand of the product. If the demand is high, prices are high, if demand is lower, prices decreases.

b. Competition - Prices can be decided as per the available competition in the market. To face the competition, defend them or create an entry barrier, prices are decided accordingly.

c. Price of raw materials - Price of raw material directly impact the prices of the products. If raw materials are priced higher, the price of the product increases.

d. Buyer Behavior - Consumer behavior directly impacts the pricing decisions of the products. It includes, social, cultural, economic and personal factors related to consumers.

e. Government rules and regulations - Government's rules and regulations are the external factors which have a direct impact on the price of a product. Governent sets rules and policies which does not allows the marketers to increase or decrease the prices insignificantly.

f. Seasonal Effect - Certain products are demanded seasonally. Hence, a seasonal pricing decisions are variables to the pricing of a product. Prices are low off-season and increases when seasonal demand increases.

g. Economic consideration - Inflationary or deflationary condition of the economy of a country is the major factor which influences the pricing decisions of a product.