Question

Define the factors that marketers should consider when setting prices. As a company imagine that you are going to price a new variant of the shampoo brand

Answer 1

Following are some of the important factors to be considered while setting prices:

1. Production Cost: Production cost is the cost incurred in manufacturing the product as finished good ready for consumption or use by consumer or customer respectively.
2. Promotion Cost: It is the cost incurred in promotion of the product. It includes costs for hiring brand ambassadors, advertisements, sponsoring events and seminars, incentives etc.
3. Competitors' Pricing: Price of the same or substitute product set by the competitors catering the same market plays important role. Any significance difference in price as compared to competitors price needs sound reason to persuade customers for the difference.
4. Consumer Purchasing Power: Price is highly dependent on consumer purchasing power. Price of a product is directly related to consumer's purchasing power. Higher the purchasing power of consumer, higher the price of a product can be set or vice-versa.
5. Demand of the Product: Price is directly related to demand. Higher the demand, higher the price can be set for the product or vice-versa.

Shampoo is a FMCG. Thus pricing is very critical for the success of the product. As a company if I am going to price a new variant of the shampoo brand, following things should be considered:

1. Production Cost: The price of shampoo has to be kept more than that of the production cost. The only effective way to reduce production cost is economy of scale which is not feasible for new variant of the shampoo.
2. Promotion Cost: Since new variant of brand is launched by company, extensive promotion is required which means higher promotional cost. But this cost can be lowered in future by reducing intensity of the promotion once new variant is established in market. If company has sufficient capital, it can bear the sudden spike of promotion cost to keep price lower and competitive.
3. Competitors' Pricing: Competitor's price plays very important role. Consumers will try your new variant only if its price is reasonable as compared to the major market players. It will be very difficult to convince customers to switch to new product and that too at higher price.
4. Consumer Purchasing Power: Purchasing power of my target consumers play crucial role in deciding price for the new variant. Price must be compatible with the purchasing power of the consumer.
5. Demand of the Product: Shampoo is a FMCG with surplus availability in numerous variety. So demand is not there in the market but has to be created using marketing mix. Thus, price has to be lower or same as compared to other market players.