For the remainder of this tutorial, we look at factors affecting pricing decisions and 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 marketer 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, which potentially allows the marketer to potentially lower the product’s price. But increasing productivity may require substantial changes at the manufacturing facility that take time (and are potentially 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 organization serves since the effect of these factors can vary by market.
Next we provide a detailed discussion of both internal and external factors.