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Before making policy, strategy and technique of determining price of goods or services, a marketer
should consider both internal and external environmental factors of the firm that affect the pricing.
All the elements of marketing mix have close relationship with environmental factors. Among them,
pricing is perhaps a very sensitive as well as explosive power. Business firm itself, consumers or
customers , channel members, competitors, government and economy are the major factors that
play significant role at different stages in the process of pricing. These factors can be discussed as
follows:
a. Organization's objectives
The objectives of a marketing organization greatly influence pricing. A manufacturing
company, at the introductory stage of its new product, determines low price to bring them
to markets. But some other firms may determine high introductory price of their products to
recover their investment or to get expected return from the investment. Whatever the
objective of the company may be, it affects price determination.
c. Competition
Price of most of products is determined by considering the competition in market price. The
company with having large market share becomes the price leader. When it increases or
decreases price of its products, other company also do the same or adopt the same policy.
But if there is no domination or influence of any single company in the market, the marketer
analyses and evaluates the prices of all main competitor companies, collects reactions and
draws conclusion. In this way, competition among manufacturers affects price
determination.
d. Government
Government policy and decisions also affect pricing. The government of each country have
their own policy, decisions, rules and regulations. Price should be determined considering
price control policy of government, sale tax, income tax policy etc. Prices of some products
are controlled by government direction and the government itself determines prices of
some products.