Factors affecting pricing decision are:
(i) Product Cost The total cost of product includes production, selling and distribution costs. The cost sets the minimum level or floor price for a product. Costs can be broadly divided into three categories:
(a) Fixed costs, which do not vary with change in production.
(b) Variable costs, which vary at all levels of production.
(c) Semi-variable costs, which vary with production, but not in direct proportion with it.
Price must be decided by adding a profit margin to the average cost of the product.
(ii) 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. Whereas, if utility is low, one cannot charge high price for such products.
(iii) Extent of Competition in the Market
The price of a product can be set upto the higher limit, if the extent of competition is low in the market, and vice-versa.