What factors should be considered in price setting, of these factors which is most important and...

What factors should be considered in price setting, of these factors which is most important and why?

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Expert Solution

This is the act of fixing price in which customers can purchase the good or service.

Factors to be considered:

No.1) Market: understanding the market is very important – if the demand for product is down its price would also be down.

No.2) Economy: If the economy is down (like recession), higher product price of luxury goods may not attract customers.

No.3) Market share: If the product has big market share in terms of meeting demand, a slight higher price could be set.

No.4) Costs: If the cost of making product is low, the price could be set low and still the maker can get substantial amount of profit.

No.5) Bargaining power: If customers have this power (like the consultancy service), price should be set slightly high because by bargaining the price will be down.

Important:

The most important factor is “cost”. There are two kinds of cost – fixed and variable. The business should try to minimize these costs constantly so that the price could be set at the minimum always, what customers always looking for. The equation of price for each product is as below:

Price = Average total cost (ATC) + Profit margin

The business should try to cut unnecessary costs like welfare cost, general electricity, etc. and should try to sit with suppliers for availing discounts on raw material purchase. These things keep the cost minimum as well as the price.

Rahul Sunny answered 1 year ago

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