Price determination is a very difficult task as it is affected by a number of factors. Therefore, before deciding the price the marketer has to keep in mind the factors affecting the price. Factors affecting pricing policy are divided into two parts:
(I) Internal factors
i) Marketing objectives: the marketing objective of the product must be kept in mind before setting the price of the product, the product is for high class, middle class or lower class.
ii) Marketing mix: one of the key elements of marketing mix is price. Other elements of marketing mix also affect the pricing decision. So the marketer must keep in mind the marketing mix while setting the price.
iii) Cost: A company must keep in mind both fixed as well as variable cost while setting the price.
iv) Organizational set up: price of the product is decided by organizational set up. In large scale organizations the price is decided by the product manager while in the small organization the price is decided by the top management.
i) Market and demand: cost of the product is the lower limit of the price. While the market and demand set the upper limit of the product. So the marketer must keep in mind the relationship between cost price and market & demand of the product.
ii) Competition: competition affects the pricing decision of the product. The marketer must have knowledge about the activities of the competitor. For this sometime the companies go for price leadership, while other goes for low pricing decision to wipe off the competition from the market.
iii) Other environmental factors: the other environmental factors also affect the pricing decisions like:
a) Economic conditions of the country like inflation, deflation, boom, recession etc. affect the pricing policy.
b)Consumer thinking about the product.
c) Distribution channel also affects the pricing policy.
d) Government policies also have an effect on the price of the product.
Therefore, all these are the important factors which affect the pricing policy.