Factors affecting the price of a product:
(i) Product Cost
(ii) Utility and Demand
(iii) Extent of competition in the market
(iv) Government and Legal Regulations
(v) Pricing Objectives
(vi) Marketing Methods used.
Detailed Answer:
Price is an element of marketing mix which refers to all important decisions relating to the fixation of the price of a product. Some factors that must be taken into consideration are:
(i) Production cost: The price should recover all costs viz. fixed costs, variable costs and semi- variable costs apart from obviously including a fair return for undertaking the marketing effort and risk.
(ii) Utility and demand: While determining the price of any product, the utility provided by it and the intensity of demand should not be ignored. If a buyer is satisfied that the given product meets his/ her requirement, he would also be ready to pay the cost and reasonable margin to the producer.
(iii) Extent of competition in the market: In case of monopoly, a firm can enjoy complete freedom in fixing prices. However, if it is facing competition, it should consider the prices charged by the competitors also.
(iv) Government and legal regulations: Government plays an important role in regulating the prices. For example, Life Saving Drugs, etc.
(v) Pricing objectives: Pricing objectives should be in accordance with the company objectives. Also, company/s objectives should be clear enough. In addition to profit maximization, pricing objectives may include (i) Obtaining market share leadership (ii) Surviving in a competitive market.
(vi) Marketing methods used: Pricing of products also gets affected by the elements of marketing such as amount spent on advertisement, type of packaging, discounting policies, credit or finance facilities etc.
