Question

EXPLAIN FIVE FACTORS WHICH AFFECT THE PRICING DECISION AND ARE BEYOND THE CONTROL OF AN ORGANIZATION

Answer 1

Factors affecting pricing decision are as follows :

1. Organizational Objectives: Affect the pricing decisions to a great extent. The marketers should set the prices as per the organizational goals. For instance, an organization has set a goal to produce quality products, thus, the prices will be set according to the quality of products. Similarly, if the organization has a goal to increase sales by 18% every year, then the reasonable prices have to be set to increase the demand of the product.
2. Costs: Influence the price setting decisions of an organization. The organization may sell products at prices less than that of the competitors even if it is incurring high costs. By following this strategy, the organization can increase sales volumes in the short run but cannot survive in the long run.Thus, the marketers analyze the costs before setting the prices to minimize losses. Costs include cost of raw materials, selling and distribution overheads, cost of advertisement and sales promotion and office and administration overheads.
3. Competition: Affects prices significantly. The organization matches the prices with the competitors and adjusts the prices more or less than the competitors. The organization also assesses that how the competitors respond to changes in the prices.
4. Price Elasticity of Demand: Refers to change in demand of a product due to change in price.

   There are three situations that arise under it:

   a. Products that have inelastic demand will be highly priced

   b. Products that have more than elastic demand will be priced low

   c. Products that have elastic demand will be reasonably priced.

5. Legal and Regulatory Issues: Persuade marketers to change price decisions. The legal and regulatory laws set prices on various products, such as insurance and dairy items. These laws may lead to the fixing, freezing, or controlling of prices at minimum or maximum levels.