What influences pricing decisions

Updated: Feb 22

The three (3) major factors influencing pricing decisions are cost, supply and demand

  1. Cost refers to the cost of production, which influences profits.

  2. Supply refers to quantity available to be sold in the market

  3. Demand indicates how much a customer wants the product

These three factors are influenced by;

  1. Market or economic condition

  2. Cost of production

  3. Market structure

  4. Taxes and subsidies

  5. Business objectives

  6. Marketing mix

Market Condition

Market condition determines the demand of the product. If the economic condition is good, demand for products and services tend to increase as income increase. Should there be limited quantity of supply in the market, prices can be increased taking advantage of the excess in demand.

Cost of production

A high cost of production will force the firm to raise prices to protect its profit. However, while prices may be reduced to below cost during promotion, prolong reduction will result to cash flow depletion, resulting to insolvency.

Market Structure

Market structure refers to the level of competition between firms in the market. What is the price of the product and how would rival firms respond to a price reduction or increase. The intensity of competition will drive the firm's marketing strategy.