Internal And External Factors Affecting Pricing Strategy

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Both internal and external factors affect determination of pricing method adopted by any organisation. Internal factors that pricing are organisational factors, marketing mix, product differentiation, cost of the product and objectives of the firm. External factors that influence pricing decisions are demand, competition, suppliers, economic conditions, buyers and government.

Internal Factors
• Organisational Factors
The organisation is usually divided into two levels where the pricing decisions take place. The top executives in the organisation determine the overall pricing strategy. The top executive also decides the basic ranges in which the product category falls into. The lower levels in the firm determine the individual product strategies
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On the other hand some firms may deliberately raise the prices to convey that their product is of high esteem value. In both cases, the pricing strategy has to match the total marketing strategy, that is, for pricing the product higher, the product quality should also be good. The firm may also give a more attractive packaging, re-launch the product or add more features to justify the price rise.

• Product Differentiation
Product characteristics also determine the price of the product. Marketers provide distinct features to the product in order to attract more sales. These features include high quality, various sizes, different colours, attractive packaging, multiple uses and large scale availability. Customers usually do not mind paying higher amount for products which are latest, high on fashion, innovative or better packaged.

• Cost of the Product
Cost of production and price of the product are closely related. If the cost of production itself is high or demands heavy investment or has a high fixed cost, the price of the product would also be higher. The marketer intends to realise the cost of production and incur profits. Moreover, marketers constantly try to minimise the cost of production and optimise
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The price of finished product is directly linked to the cost of inputs. Scarcity of raw materials further increases the cost of the product and abundance of raw materials decreases the cost of product.

• Economic Conditions
Economic conditions such as inflation and deflation also affect product prices. During recession, prices of products and services is reduced. This is done to maintain sales since demand for products and services reduces due to decrease in purchasing power of people. On the other hand, during an economic boom, the prices of goods and services increases because the purchasing power of people is high and there is greater demand for products. Marketers follow various pricing techniques in order to meet the changes occurring due to change in demand and price.
• Marketers increase the price of products in order to protect their profits during rising cost of production
• Marketers develop a price protection systems to link the price of the finished good to the prevailing cost of production
• Marketers shift their focus from sales volume to reducing cost and increasing profit

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