factors to consider when setting prices

• Pricing


  The act of determining the price of a product or service
• Price


  The set amount customers have to pay to purchase a product
• Factors affecting pricing decisions

  • Product Cost and Operating Expenses
  • Competitors
  • Economic Conditions
  • Government Laws and Regulations
• Product costs


  The costs involved in manufacturing goods or offering services
• Operating expenses


  The costs of running a business, including rent, utility cost, office supplies, and marketing expenditures
• Competitors offer the same product with the same benefits at a lower price


  Leads to a price war
• Economic conditions are hard


  Companies may choose to do cost-cutting methods, sacrificing product quality to manufacture at a lower cost
• The government imposes price changes through laws and regulations


  Significantly increases the prices of products (e.g. Sin Tax Reform Law in the Philippines)
• Price floor


  The lowest price where the company can earn profits
• Price ceiling


  The maximum price that customers are willing to pay for a given product
• Value-based pricing


  • Companies price their products based on the maximum price that customers are willing to pay for the benefits they will get
• Cost-based pricing


  • Companies base their prices on the costs of manufacturing, distributing, promoting, and selling the products
• Competition-based pricing


  • Companies base their prices on their competitor's price, deciding to price the product higher than, lower than, or on a par with the competitors' market offering
• Market skimming pricing


  • Some brands with an established credibility and a huge following opt to introduce a new product with a high initial price to skim revenue layers from the market
• Market penetration pricing


  • The company decides to offer a new product at a low initial price to quickly penetrate the market