Pricing Decisions

Factors Affecting Pricing Decision

For the remainder of this tutorial we look at factors that affect how marketers set price.  The final price for a product may be influenced by many factors which can be categorized into two main groups:

• Internal Factors - When setting price, marketers must take into consideration several factors which are the result of company decisions and actions.  To a large extent these factors are controllable by the company and, if necessary, can be altered.  However, while the organization may have control over these factors making a quick change is not always realistic.  For instance, product pricing may depend heavily on the productivity of a manufacturing facility (e.g., how much can be produced within a certain period of time).  The marketer knows that increasing productivity can reduce the cost of producing each product and thus allow the marketer to potentially lower the product’s price.  But increasing productivity may require major changes at the manufacturing facility that will take time (not to mention be costly) and will not translate into lower price products for a considerable period of time.
• External Factors - There are a number of influencing factors which are not controlled by the company but will impact pricing decisions.  Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market.

Below we provide a detailed discussion of both internal and external factors.