Factors which affect the fixation of price of a product are as follows:
(i) Costs of product: Pricing of the product is based on specific costs related to cost of raw materials, costs of factors of production and distribution. These costs are not necessarily low and feasible as the nature of the industry and business practices vary from product to product that affects the fixation of price.
(ii) Competition: Competition and their nature also influence the prices of the product/services. Nature of competition implies whether therearefew producers with large or small number of buyers and large number of producers with large or small number of buyers. Either way prices would change according to imperfectly competitive nature of the markets. The most favourable approach to tackling animperfect market is to identify a significant advantage the business can adopt either in terms of quality, efficient business processes, effective supply chain and distribution approaches.
(iii) Demand: Businesses need to study the nature of demand affected by elasticity of demand, presence of substitutes and complementary goods, growth in demand for the products, market share and sales of the products. These factors assist a business to forecast the possible shift in demand that influences the prices of the products.
(iv) Psychological pricing: Psychological pricing is related to realising the changing tastes and preferences of consumers in the market reflecting their purchasing behaviour. This includes, understanding the nature of the target markets, the conditions of the product during and post purchase, consumers' attitudes and perceptions, etc.