factors determining the price of a product

Pricing is the procedure of fixing the value they will receive in exchange for services and goods when sold. Pricing methods are used to adjust the price of a product or service to suit both the buyer and the manufacturer. The price is determined by the company’s aggregated cost price and the perceived value of the product compared to the perceived cost of competing products. In this chapter, we will read about the price of a product and various factors determining the price. So, if you are preparing for the upcoming examinations, you might go through these notes to better understand the concepts that determine pricing strategy. 

What is the price of a product?

In the field of trade, pricing plays a vital role. Pricing refers to the process of determining the price of a product. The price of a product represents the amount a buyer has to pay to buy to obtain a product on the market. Price is considered as one of the regulators of demand for a good because when it is excellent than other similar ones price goes up and vice versa when it’s bad. Under perfect competition, most companies compete against each other based on this factor. Therefore, companies attach great importance to fixing the price of goods and services.

What are the objectives of the pricing?

The goal of pricing for any business is to set affordable prices for consumers and manufacturers to survive in the marketplace in the initial stages. Each company runs the risk of being driven out of the market by fierce competition and changing customer preferences and tastes. Therefore, all variable and fixed costs must be considered to determine the price of an article. After the survival phase is over, the company can pursue additional revenue generation.

Market rules Companies impose low metrics on services and goods to capture large markets. This technique increases sales by increasing demand and reducing production costs. 

Here, the innovative ideas market demands a reasonable price for innovative and technologically advanced products and services—high cost due to increased production cost. Cell phones and electronic gadgets are some examples.

Different ways to determine pricing strategy

The total cost method is categorised into two basic types:

Cost method: Used by most companies to determine the price of finished products. It is divided into cost plus price mark price target payback price. In the cost-plus method, the producer assesses the cost of production and adds a certain percentage as the profit on the cost of production. A certain percentage of the product cost is added to the final price in the pricing method to obtain the final product. The target return pricing method sets the price so that the company earns the amount invested in the production of the product.

Market price method: This method determines the price of goods or services according to market research and trends. It is further divided into five types. In perceptual value pricing, the price of a product is fixed from the buyer’s point of view. They consider production costs, product quality, advertising and promotions. Firms try to produce better quality products at lower prices in the cost determination method. In the current rate system, a company determines the price of a product by estimating, for example, the price of a competitor. 

What are the factors determining the price of a product?

Factors Affecting Price: The critical factors that influence product price are: 

• Product Cost: The total cost of the Product includes manufacturing, sales and distribution costs. In the long run, the company tries to cover all costs. Fee establishes a minimum level or minimum price for a product. 

• Utility and Demand: It is necessary to predict the utility and demand by fixing the price since it is easy to charge a high price to the buyer if the product provides a higher utility. 

• Degree of Competition in the Market: If the level of competition in the market is low, the price of the goods may be capped, and vice versa. 

• Government and legal regulations

•  Pricing Target: If the firm’s goal is to maximise sales, the price is set lower, and if the firm’s goal is profit maximisation, the price is set higher.

Conclusion

Above, we have studied the various factors that determine the es price. Pricing methods are used to adjust the cost of a manufacturer’s product to suit both the manufacturer and the buyer. Pricing has very crucial importance in the growth of the business. The price of a product represents the amount a buyer has to pay to buy an effect on the market. Price is considered a regulator of demand for a good because when the cost of the good goes up, demand goes down and vice versa.