Question

Describe the factors that influence pricing decisions in practice.

Answer 1

Pricing is one of the four broad levels of the Marketing Mix which is considered for taking Marketing decision in an Organization along with Product, Place and Promotion.

Price refers to the total cost which is paid by the customer to acquire the product. It helps in generating revenue for the Organization and helping them sustain in the market.

Before setting the Price of the product Organization needs to consider various factors and then the Product price is determined after overall consideration of all the factors and a planned approach is taken by the Marketing head of the organization and then the product is launched with a price which is relevant to its characteristics and quality.

Few factors which determine the Pricing decision of a product in an Organization:

1) Financial Goals of the Organization - Price of the product set by the Organization determines how they want their product to be positioned in the market. Whether they want it to be people product or only to the niche crowd. For example - Reliance Jio came into the market with penetrating price and captured whereas Apple only caters to niche crowd by charging their product prices to be high.

2) Marketplace Realities - In this the marketer of the Organization keeps the customers in mind before setting the price whether they will shell this much amount according to the characteristics or features of the product. They try to set a reasonable price so the demand of the product is desired as required by the Organization.

3) Legal and Regulatory issues - Government and legal bodies have certain rules & regulations on specific types of products. They determine specific prices for a set of product or keep an upper limit and penalize if someone keep the price higher than the same. For example dairy items, insurance products, etc.

4) Value based pricing - Organization wants to send a signal to the market that the price of the product is in equivalence to the quality or features of the product. If the product is unique and is of high quality the price tends to be on higher end and vice-versa. Main aim of this type of pricing is to set an overall positioning strategy e.g., keeping a luxury image or necessity.

5) Competition - Competition in the market determines the price significantly. If the market has lots of competitors the price of the product cannot be too high or too low as they need to set the price keeping in mind how the competitors would react to the price set and how it would change the demand of the product. Mainly they matches the price of the competitors or adjusts it near to them.

6) Price Elasticity of Demand - It refers to the change in demand of product due to change in price. Mainly three categories follows : A) If demand is inelastic price is high E.g., Gasoline. B) If demand is elastic price is reasonable. E.g., Clothing   C) If demand is more than elastic / highly elastic price is low - As because the price of the goods are highly affected or very sensitive due to which consumers tend to avoid buying those products and which inversely effects the price of the product. e.g - Furniture, motor vehicle, etc.

7) distribution Channels - Distribution channel plays a pivotal role in the pricing of the product. If the distribution channel is large the price of the product will be high and if the channel is short the product price will be low.

Thus, these are the major factors that determine the pricing strategies of the product.