factors determining price

• Cost of production

  The cost of producing the product or delivering the service is a fundamental factor in pricing. This includes expenses such as raw materials, labour, manufacturing or operational costs and overheads. The price of the product must ensure that these costs are covered.
• Maximising profits

  One of the primary objectives for businesses is to maximise profits. In this case, pricing decisions are driven by the aim of setting prices that generate the highest possible profit margins. Businesses carefully analyse their cost of production, market demand, and competition to identify the pricing strategy that will generate the highest profit. It's important to note that maximising profits doesn't always mean setting the highest possible price. Sometimes, setting a slightly lower price can lead to higher sales volume and overall profitability.
• Competition

  The level of competition in the market influences pricing decisions. In a competitive market, businesses may adjust their prices to align with or differentiate themselves from competitors. Factors such as market share, market positioning, and the availability of substitutes can impact pricing strategies. For example, Coca-Cola and PepsiCo are well-known competitors in the beverage industry. Both companies closely monitor each other's pricing strategies to remain competitive. They often adjust their prices to align with or undercut each other, aiming to capture market share and maintain their market position. The availability of substitutes, such as other soft drink brands, influences their pricing decisions as well.
• Customer demand

  When setting a price, businesses consider factors like customer preferences, purchasing power, and willingness to pay. Prices may vary based on the perceived value of the product or service, the level of demand and how sensitive customers are to price changes. For example, Apple's pricing strategy for its premium iPhones considers customer demand and willingness to pay for high-quality, innovative devices. Apple positions its products as cutting-edge and technologically advanced, which creates a perception of value among customers. This allows them to set premium prices, knowing that their loyal customer base is willing to pay a higher price for their brand and products.
• Market conditions-Factors such as market conditions, economic trends, and inflation can influence pricing decisions. Businesses may adjust prices based on temporary changes in the market and overall economic conditions. For example, during an economic recession a business may reduce prices to reflect reduced demand. For example, British Airways may lower its ticket prices during off-peak seasons or economic downturns to stimulate travel demand and fill seats that would otherwise remain empty.