1. The given case relates to “Pricing” as a component of marketing mix.
2. Following factors related to pricing have been discussed :
Product cost – The product cost sets the minimum level or the floor price at which the product may be sold. As far as possible, price of the product should cover his cost and a reasonable profit. However, in case of a new product or new market, price may be fixed below cost.
Utility and demand – Utility provided by the product and the intensity of the demand of the buyer sets the upper limit of the price. A consumer will not pay price more than the utility of the product. When demand of the product is inelastic, the firm can charge higher price.
Competition – Competitors’ prices and their anticipated reactions must be considered before fixing the price of the product. In case of intense competition the firm will keep the price low.
Objectives – Pricing policy of a firm is influenced by the objectives of setting the price. The objectives may be to capture a large market share, to increase profits, to increase sales or to survive only.
For example, if the objective is to maximise sales or have a bigger market share, a low price will be fixed.