Pricing Decisions

When a company is looking to price a product, there are several factors that should be considered. As price is one of the most important influences on whether or not a customer purchases a product or not, a proper price must me set. There are 8 factors that influence the price including: organizational and marketing objectives, pricing objectives, costs, channel member expectations, customer interpretation and response, competition, legal and regulatory issues, and the other marketing mix variables. I will focus on 2 of what I think are the most important factors.

Costs for a company are extremely important when pricing a product. In the long-run, a company cannot survive if they sell their product below the cost to make it. A marketer should carefully look at all costs associated with the product, so that they are included in the price. In order to keep prices low, many marketers look to reduce costs of making the product, especially in the electronic and computer industry where prices can become very high. Marketers often look at all the costs involved in making a product and view that as the price floor for the customer.

I also believe that the competition's prices can play a large role when setting the price of a product. If a company does not have a similar price for a very similar product, they will not be very successful. This does not mean that the company has to exactly match the competitors' prices, but can prove to be a successful survival strategy. Often times some companies will raise their prices much more for high product quality or extra features, but usually similar products are similarly priced. Marketers must also try to anticipate how competitors will respond to changes in price. If the competitor also lowers or raises a price to a cheaper list price than yours, they may sell more of that product. Competition is a factor that marketers must constantly be analyzing and scanning for any clue as to how to gain a competitive advantage.

What factor affecting price do you think is most important? Is there a most important one? Why?