Pricing Decision Case Study

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The setting of prices in marketing is influenced by a variety of factors. These factors could be internal to the organization or external to the organization. One major determinant of the price of goods or services is how the customer will react to the prices. This is mainly because though customers usually purchase goods and services based on their perception of value and not solely on the price of the product alone, the price of the product influences their perception of the product.

Several factors influence the pricing decision of firms. Some of the major factors include – pricing objectives, strategy, cost, competition, customer expectations, government regulations and demand. These factors
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These objectives seek to address the priorities of the firm. A firm could have multiple objectives but most firms typically follow only one of the different objectives. Some of these objectives include a focus on profit, market share, return on investment and cash flow. These objectives are dependent on the stage of the firm’s products in the market. A focus on profit requires that the firm seeks to get the greatest profit from its products. Sometimes the firm may focus more on maximizing the profit margin per unit of its products. A firm focuses on market share when it is either trying to gain a foothold in a new market or trying to retain its existing share in the market. Focusing on return on investment dictates that the firm’s products have a fixed percentage return above the cost of producing and marketing them. Finally, firms focused on cash flow require that the revenue from the sale of products covers the production and marketing …show more content…
These factors may be internal or external to the firm. Focusing solely on the interests of functional managers results in the firm adopting a narrow approach to the setting of prices. Firms should adopt a holistic approach in the setting of prices. Though functional managers might be tempted to pursue functional goals and objectives in their approach to setting prices, this should not be encouraged. This is because these functional goals may not be in tandem with the overall objectives of the firm. In setting prices, a firm needs to consider the needs of the customers and the actions of competitors in the marketplace. This is critical because it is the customer that purchases the products and the customer makes purchases based on the sense of value they attach to the product. Furthermore, the actions and reactions of competitors could impact on the firm’s products. By putting external factors into consideration when setting prices, the firm is able to obtain a more optimal return on its

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