Pricing refers to the process of deciding the price of a product . Factors affecting the price determination of a product are :
- Product Cost : The cost sets the lower limit or the floor price at which the product can be sold . Ideally the price of a product should cover its cost and include a reasonable margin of profit over and about it .
- The Utility and Demand : Utility of a product refers to the benefit that the consumer is likely to derive through the use of a product . The buyer will generally be inclined to pay the price of a product which is atleast equivalent to the utility demand of the product .
- Extent of Competition in the Market : The price of a product is also influenced to a great extent by the nature and degree of competition that a firm faces in the market . If the level of competition is high , the firm is likely to fix the prices of its product on the lower limit . Where as, if the level of competition is low , price of the product is likely to reach the upper limit .
- Government and Legal Regulations : In order to safeguard the interest of the consumer against unfair trade practices in the area of pricing , the Government may intervene and regulate the price of the product . Furthermore , if required the Government can declare a commodity as an essential commodity and regulate its prices . This is generally done in case of Life Saving Drugs .
- Pricing Objectives : The pricing objectives that a firm seeks to realize in its target markets have an important bearing on the pricing decisions . In case a firm decides to maximize profits in the short run , it is likely to set the price at the upper limit . On contrary to this , if a firm decides to maximize profits in the long run , it is likely to fix the prices on the lower limit , as it would enable the firm to maximize sales and capture a larger market share .
