In pricing the price is the exact value of the product by which one party pays to another in exchange for some goods or services. So in other words we can say that the buyer will pay the amount as consideration to the seller in exchange for goods or services.
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Meaning of Pricing:
It represents the cost of the product, its perception which is charged by the seller at the time of sale of the product to the buyer. While determining the cost/value of a product, the company has to take care about the price that should not be too high or even too low otherise the product will fail in the market.
Factors affecting Pricing:
According to the market conditions and other circumstances the company has to think about the important factors which are as under:
1. Cost of the Product:
The important factor affecting the valuation is, the product cost. It will be inclusive of the cost of production, selling and promotion costs, distribution costs. It is known as the benchmark for setting the price.
There are three types of costs of a company while determining the price of the product:
- Fixed Cost: This is fixed in nature. For example, the rent of the factory premises, salaries etc, are the fixed costs.
- Variable Cost: These costs are vary according to the production levels of an entity. If there is no production then no any variable cost incurred. The raw material is a good example of a variable cost
- Semi-Variable Costs: These costs also fluctuate with the production levels. Examples are: telephone expenses, salesmen’s incentives etc.
2. The Demand for the Product:
The limit of the price will depend on the utility the produc. So the cost of the product is depend on the seller’s concern. The demand for the product will depend on its utility and its price. The law of demands defines that less the price higher the demand.
3. Price of Competitors:
The different features and other factors like distribution channel, promotions etc. should also be studied while determining the price of the product. It also includes the compititor’s policies and offers given to the customers.
4. Government Regulation:
To protect the citizens from unfair practices and pricing should be the main aim of the company. So obeying certain laws and regulations with regards to the pricing of a product are the duties of the businessmen to survive for long run.
5. Economic Condition:
Such as – Boom or recession, Inflation rates, have an great impact on pricing decision because these conditions affects the cost of production and consumer’s buying decisions.