Process of price determination

Process of price determination

What is price determination? Business Dictionary define interaction of the free market forces of demand and supply to establish the general level of price for a good or service.

According to information by Cyclopedia at Website, pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product. Pricing is also a key variable in microeconomic price allocation theory. Pricing is a fundamental aspect of financial modeling and is one of the four Ps of the marketing mix. (The other three aspects are product, promotion, and place.) Price is the only revenue generating element amongst the four Ps, the rest being cost centers.

The market price is the price determined by the free play of demand and supply. The market price of a product affects the price paid to the factors of production – rent for land, wages for labor, interest for capital and profit for enterprise. In fact, price becomes a basic regulator of the entire economic system because it influences the allocation of these resources. (Francis, 2012).

The pricing decisions must take into account all factors affecting both demand price and supply price. The price determination process involves the following steps: Market Segmentation: On the basis of market opportunity analysis and assessment of firms strengths and weaknesses marketers will find out specific marketing targets in the form of appropriate market segments. Marketers will have firm decision on : (a) the type of products to be produced or sold, (b) the kind of service to be rendered, (c) the costs of operations to be estimated, and (d) the types of customers or market segments sought. The Estimate of Demand will be based on sales forecast, channel opinions and degree of competition in the market. (Francis, 2012)

In the Market Share Marketers will choose a brand image and the desired market share on the basis of competitive reaction. The Marketing Mix the overall marketing strategy is based on an integrated approach to all the elements of marketing mix. The price is the strategic element of marketing mix as it influences the quality perception and enables product positioning. The Estimate of Costs the marketing must take into account all relevant costs as well as price elasticity of demand, if necessary, through market tests. (Francis, 2012).

The Pricing Policies are guidelines to carry out pricing strategy. Pricing policy may desire to meet competition or we may have pricing above or below the competition. Pricing policies must change and adapt themselves with the changing objectives and changing environment. The Pricing Strategies are general guidelines for recurrent and routine issues in marketing and the Price Structure is developing the price structure on the basis of pricing

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