Responsible management and serious studies in the determination of prices are essential in the search for an equilibrium value that guarantees companies a maximum of long-term profit.
This article will focus on external factors that must be taken into account for pricing.
The fundamental factors in setting prices will always be the law of supply and demand and the price elasticity of demand of the good to be sold, however there are several additional factors that must be taken into account in the marketing environment to properly determine the price. of the goods.
Here is a brief list of the most important factors.
1. Economic environment:
It consists of determining whether the market for the good to be sold is in expansion, boom, slowdown or recession. In general, when markets are depressed, prices must be lower to stimulate sales, and high prices will drive away potential customers. Generally, a depressed market is synonymous with increased competition in search of increasing the market share of the various competitors.
2. Demographic factors:
When reaching a specific region it is necessary to take into account the following factors in determining the price:
- Number of potential buyers Expected levels of consumption Economic strength of sale History of consumption Type of buyers (resellers, direct sales, final consumers, etc.)
A wide market potential generally allows a broad band in the determination of prices, generally to greater volume of market, the price can be lower in search of competitiveness and positioning.
3. Mental factors:
It has to do with the perception of consumers in the relationships of:
- price - quality: A very low price can sometimes be synonymous with low quality. price - promotion: To what extent a price must fall to attract a large number of buyers. price - service utility: To what extent consumers will think that the price of the product is too high compared to the benefit obtained. price - prestige: This variable generally depends on the exclusivity or rarity of the good and applies to luxury goods. On some occasions when the good is more expensive, buyers are more interested in the price - disposition: It consists of determining how much is the maximum price that a common consumer would be willing to pay for the good.
4. product factors:
There are three main ones:
Expiration: When a good is perishable, its price generally cannot be very high due to the fact that stock-type goods cannot be kept.
Perishable goods are generally low - medium in price
Difference: It has to do with the type of good in relation to its function and substitutes.
- When the good is unique, its price is generally higher.When the good is complementary, its price is generally relative to the good it complements, for example a baseball glove, it cannot have a relatively high strength with respect to a ball.When the good is As a substitute, its price is generally lower, for example when refined sugar is replaced by cheaper sweeteners such as panela or cane.
Product cycle: Generally when a product is a novelty its price is higher, as its life cycle ends, the product will tend to be more economical.
The typical example is computers, items that become cheaper as time goes by and older models constantly drop in price.
Price can be synonymous with quality, quantity, exclusivity, intention or class. Generally a price is the determination of a hidden market ratio.
5. Competition:
The price sometimes depends on the level of competition, the most important factors to take into account in terms of the competitors are:
- Number of competitors Location of the competitor Size and strength of the competitor Barriers to entry and exit from the industry Type of vertical integration of the competition Quantity and type of offer of the competitor Quality offered and distribution channels
6. Regulation:
It is important to take into account the factors of state regulation on some occasions, because many products have price caps or follow special regulations.
Pharmaceutical goods, toxic elements, transport, special imports generally have special price regimes.
7. Laws:
Rules that prevent illegal price practices must be taken into account for the proper functioning of the markets and avoid possible fraud against consumers. Some practices that the laws try to avoid are:
- Collusions Unfair competition Dumping Misleading pricing Misleading promotions Antitrust laws
In addition, special social factors such as brand valuation, social acceptance, or liking can play additional factors in determining prices.
Responsible management and serious studies in the determination of prices are essential in the search for an equilibrium value that guarantees companies a maximum of long-term profit.
