Factors Affecting
Pricing Decision
What is price?
Price is defined as an amount charged by a company to
a buyer in exchange for goods or services.
 On the side of buyer, it is equivalent given or asked in
exchange of value or cost.
On the side of the seller, it is the amount that the
business charges it customers for a product or service
which is part of the firm’s total cost of investment in
view of the firm’s target profit.
Internal factors affecting price
1. Marketing objectives – survival, current
profit maximization, market-share
leadership, and product-quality leadership.
2. Marketing mix strategy
3. Costs – (Fixed + variable = Total cost)
4. Organizational considerations
External Factors
1. The market
2. The demand
3. The competition
4. The general condition
The Market Structures
Four types:
1. Pure monopoly – occurs when there is only one dominant
seller of a specific good or seller. (Monopsony- a market
condition when there is only one dominant buyer)
2. Oligopolistic competition- few sellers (Oligopsony – few
buyers)
3. Monopolistic competition- many buyers and many sellers
who trade over a range of prices rather than single market
price. (sellers are able to differentiate)
4. Pure competition – many buyers and many sellers who deal
with a uniform commodities such rice, salt, and sugar. (no
chance of differentiation)
The Demand
In the end, the consumer decides whether a product’s
price is right or not. Marketing starts with customer
needs and wants and ends with customer satisfaction.
Price Elasticity of Demand
Elasticity refers to the degree of responsiveness of
demand to price changes:
Elastic demand-if the percentage change in demand is
greater than the percentage change in price. D>P
Inelastic demand – if the percentage change in demand is
less than the percentage change in price. D<P
Unitary demand – D=P
Example # 1 .
The price of Brand 1 detergent is expected
to increase by 10 percent by next month. If
this happens, 15 percent of its buyers are
expected to shift to Brand 2, a much
cheaper brand. In this case, demand is
elastic since the percentage change in
demand (15% of buyers to shift to Brand 2)
is greater than the percentage change in
price (price increase of 10% on Brand 1
detergent).
Example #2
The holy redeemer School is planning to lower its
tuition and other fees by 12 percent. If it does, it
expects enrollment to go up by 7 percent. Since
the percentage change in demand (increase in
enrolment by 7%) is less than the percentage
change in price (decrease in tuition and fees by
12%), then demand is inelastic.
Example 3
Agua Berna is planning to increase the price
of one gallon of purified water from Php10 to
Php12. if this happens, the company
estimates that demand will fall from 100
gallons a day to 80 gallons a day. In this case,
demand is unitary since the percentage
change in demand and the percentage
change in price are equal at 20%.
Effect of demand elasticity on
pricing decision
 Elastic demand – prices plays a vital role in consumers’
buying decision. When demand is elastic, buyers are pricesensitive, which means that price is an important factors
consumers consider before buying the product
 Inelastic demand – buyers are not price-sensitive as those in
elastic. Consumers look for other product attributes, besides
price, in making their purchase decision.
 Unitary demand- the behavior or demand and price is the
same so that any percentage change in price would result in
the percentage change in quantity of demand.
The competition
Competition plays a significant role in setting a
company’s price. The price of a company’s
product can be effectively set when the prices
of other companies offering the same product
are considered.
The general conditions
When setting prices, a company must also
play by other factors within the external
environment like the economy, the
sociocultural characteristics, the politico –
legal situation, and technological
advancements.
Questions?