Marketing
Pricing
Decide where a price should be set.
Price is the amount of money a buyer pays for a product or service. Several factors decide it:
- Product cost: the floor price, below which the firm loses money. Costs are fixed (they stay the same however much is produced, like rent), variable (they rise in direct proportion to output, like raw material), or semi-variable (partly fixed, partly variable, like a salary plus a commission on sales).
- Utility and demand: what buyers are willing to pay sets the upper limit.
- Competition: decides where between the floor and the ceiling the price settles. Under strong competition, prices move towards the lower limit.
- Government and legal regulations: the government may fix the prices of essential goods to protect the public.
- Pricing objectives: a firm aiming for quality leadership charges higher prices; one aiming at market share charges lower ones; one wanting to survive may cut prices.
- Marketing methods: distribution, advertising, packaging, credit and services all affect the price.
Example: if the steel for one bicycle costs ₹500, it is a variable cost, so the steel for 20 bicycles costs ₹10,000.
Cost is the floor; value is the ceiling.
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