Price is the only element in the marketing mix that produce revenues, all other elements costs. A company’s pricing decisions are affected both by interval company factors and external environmental factors. Internal factors include
The company’s marketing objectives, marketing mix strategy, costs and organization. External factors include the nature of the market and demand, competition and other environmental elements.
The pricing strategy is largely determined by the company’s target market and positioning objectives. Common pricing objectives include survival, current profit maximization, market share leadership and product quality leadership.
Price is only one of the marketing mix tools. The company uses to accomplish its objectives, and must be coordinated with product design, distribution and promotion decision to form a consistent and effective marketing program. Prime decision must be carefully coordinated with the other marketing mix decisions when designing the marketing program.
The company wants to change a price that both covers all its Costs for producing distributing and selling the product and delivers a fair rate of return far its effort and risk. There can two types of costs fixed and variable. Total costs are the sum of the fixed and variable costs for any given level of production.
Costs set the floor for the company’s price- the price must cover all the costs of making and selling the product, plus a fair rate of return. Management must decide who within the organization is responsible for setting price. In large companies, some pricing authority may be delegated to lower-level managers and sales people, but top management usually sets pricing policies and approves proposed prices. Production, finance ad accounting managers also influence pricing.
External factors that influences pricing decision include the nature of the market and demand, competitions prices and factors such as economy, needs and government actions. Pricing is especially challenging in markets characterized by monopolistic competition or oligopoly.
Consumers compare a products price to the prices of competition’s product. A company must learn the price and quality of competitions offers and use them as a starting point for its own pricing.