Pricing is the element of marketing mix that affects the revenue and profits of a firm. Pricing of a product, is influenced by many factors. Some of them are as follows:
1. Product Cost
The total cost of product includes production, selling and distribution costs. In the long run the firm strives to cover all their costs. The cost sets the minimum level or floor price for a product. In addition to that firm aims td earn profit margin over and above the costs.
Costs can be broadly divided into three categories:
(i) Fixed costs, which do not vary with change in production.
(it) Variable costs, which vary at all levels of production.
(Hi) Semi-variable costs, which vary with production, but not in direct proportion with it.
Total cost is the sum total of fixed, variable and semi variable cost, at a specific level of activity. Price is determined by adding a profit to the average cost of a product.
2. The Utility and Demand
It is necessary to anticipate the utility and demand of a product, while fixing the price, as if a product is offering higher utility, one can easily charge high price from the customer.
Whereas, if utility is low, one cannot charge high price for such products. On the other hand, if the demand is elastic, price should be set at a lower level and if the demand is less elastic or inelastic price can be set at a higher level.
3. Extent of Competition in the Market
The price of a product can be set upto the higher limit, if the extent of competition is l#w in the market,-- and vice-versa. Comflfeetitg price, their reactions, their product, qul features must be considered before fu] price.
4. Government and Legal Regulations
To protect the interest of general public, the government has all the rights to control the prices of various products and services by including the products in the category of essential commodities.The common commodities in essential commodities are drugs, some food items, LPG, etc. With government intervention, there can be a check on the activity of monopolist as they cannot charge unfairly high price for essential commodities.
If the objective of the firm is to maximise sales, price will be set at a lower level, whereas, if the firm’s objective is profit maximisation, price will be set at a higher level. Apart from this, the firm’s other pricing objectives may be:
(i) Obtaining market share leadership by setting the price at lower levels.
(ii) Surviving in a competitive market by setting price at lower levels, in order to face intense competition efficiently.
(iii) For attaining product quality leadership.
(iv)High prices are set to cover high quality and cost of research and development.
Marketing Methods Used
The price of the product also gets affected by various techniques and methods of marketing used to promote the products. If the company is using intensive advertising to promote the sale of product, then it will charge high price. Other marketing methods, which affect price of a product are type of packaging, distribution system, salesmen employed, customer support services, etc.