Explain briefly factors affecting Price determination.
Answer – Price is the amount paid for a product or service. It directly affects demand, revenue and competitive position.
- Product cost: consider fixed, variable and total costs. Price must support sustainable cost recovery, though short-term decisions may differ.
- Utility and demand: customers' perceived value and price sensitivity influence the upper limit and feasible price range.
- Competition: competitors' prices, quality and offerings affect the firm's freedom to set price.
- Government and legal regulation: observe applicable price controls and rules against unfair practices.
- Pricing objectives: objectives may include profit, market share, survival or product-quality leadership.
- Marketing methods: distribution, advertising, service and credit arrangements influence the price and its justification.
A high price without customer value may reduce demand; a very low price that cannot cover sustainable costs is also unsuitable.