Suppliers: Suppliers of raw materials and other goods can have a significant effect on the price of a product. For instance, an organization has a pricing objective to increase the market share through low pricing. At the same time a marketing manager must taken in to consideration the prevalent price of the product at the market. Pricing objectives must not be in conflict with the marketing objectives of the firm. During short run, a firm can earn maximum profit by charging high price. Effects of Elasticity on Prices Elasticity is another theory of price determination.
The constraints reflect cultural differences such as language and religious differences , prohibitive transactions costs of migration, or foreign-imposed limits on market access. In fact, price becomes a basic regulator of the entire economic system because it influences the allocation of these resources. Scarcity or abundance of the raw materials also determines pricing. So, the price determiner should get knowledge about the distributors' attitude towards the price and what price will they sell the products to consumers. Consumers and target markets also affect pricing of products. The investor is free to choose between domestic and foreign investment opportunities.
Legal Considerations A marketing manager should be aware of the law of the country before fixing prices. Let's take a few examples to explain these economic theories in common situations. The Chinese authorities, worried about the economy overheating, recently tightened monetary policy in a bid to rein in price pressures. There is one ongoing price in the whole market and no single buyer or seller can affect this price. Nature of the market and demand: What is the expectation of the market about the product or services? That way, they know the price of the oil, can plan for it financially, and so reduce or the risk to their corporations. The possibility of an Israeli strike was also a concern.
What profit should be earned on the sale of products? Government and Legal Regulations 5. An example of a hedger would be an airline buying oil futures to guard against potential rising prices. This would allow it to keep its dominant market share. In order to protect the interest of the public, the government intervenes and regulates the prices of the commodities for this purpose; it declares some products as essential products for example. For example, if computer prices increase, decreasing the demand, consumers will have less need for software; so the demand for software apps will drop.
The government of each country have their own policy, decisions, rules and regulations. While current Fed interest rates are at near-historic lows, the Federal Reserve has hinted at a hike in the federal funds rate by the end of the year, which should eventually manifest itself as an increase in mortgage interest rates. Pricing Objectives: Help an organization in determining price decisions. The most important factor is the cost of production. On the other hand, functional distribution is associated with the distribution of income among different factors of production as per their functions.
Price should be determined considering price control policy of government, sale tax, income tax policy etc. Exploring all of the possible options is a big deal. Technology: Advances in technology increase productivity in the manufacturing processes, making goods more profitable and shifting the supply curve to the right. Basically, the prices of products and services are determined by the interplay of five factors, viz. Competition: Competitive conditions affect the pricing decisions.
For this purpose, such business keeps its price higher in order to cover the higher performance of its product along with the costs incurred on research and development. According to the National Association of Realtors, upgraded are among the most important upgrades cited by homebuyers because they represent a major expense and headache if the buyer has to upgrade them. Article shared by : Main factors affecting price determination of product are: 1. Government and Legal Regulations: The firms which have the monopoly in the market, usually charge the high price for their products. Marketers will have the firm decision on — a the type of products to be produced or sold, b the kind of service to be rendered, c the costs of operations to be estimated, and d the types of customers or market segments sought.
However, when the demand for a product is elastic, little variation in the price may result in large changes in quantity demanded. However, there are fundamental drivers of the price. Average total cost is the total costs divided by the number of units produced. The increased volume of foreclosures and short sales provided both domestic and foreign investors with the opportunity to snatch up inexpensive properties to either rent out or renovate and resell at a profit. Price Elasticity of Demand: Refers to change in demand of a product due to change in price. The most frequently cited if any of these for each commodity appears in the right-hand column. This sensitivity is measured by price elasticity of demand.
Increase Increase Decrease Decrease Decrease Increase Strike Price The determines if the option has any. Costs: Influence the price setting decisions of an organization. The Utility and Demand: Usually, consumers demand more units of a product when its price is low and vice versa. Extent of Competition in the Market 4. Interestingly, our respondents awarded an 8.
Such distortions affect only the magnitude of capital imports or exports, not the social value of capital. The theory of factor pricing deals with the determination of the share prices of four factors of production, namely land, labor, capital and enterprise. Source: According to Roubini Global Economics: emerging market oil demand growth, driven by China, will soak up global supply growth, keeping the supply-demand balance tight and oil prices elevated over the next five years. In smaller businesses, top management is responsible for setting the price of the product. For instance, if you drive through a McDonald's and find that their Big Mac has risen in price, you will buy it that time, but next time you might go to Burger King or Wendy's. Price increases of beef will cause consumers to buy more chicken and pork. For example, fixed salary of Rs 12,000 + upto 6% graded commission on increase in volume of sales.