Factors to consider when setting prices
All profit organizations and many non profit organizations must set prices on their products or services. Simply defined, price is the amount of money charged for a product or service. More broadly, price is the sum of the values consumers exchange for the benefits of having or using the product or service. A company’s pricing decisions are affected both by internal company factors and by external environmental factors. These factors are shown in Figure 1. Internal factors include the company’s marketing objectives, marketing mix strategy, costs, and organization. External factors include the nature of the market and demand, competition, and other environmental factors.
Internal Factors Affecting Pricing Decisions
Marketing Mix Strategy
Price is only one of the marketing mix tools that the company uses to achieve its marketing objectives. We have coordinated our price decision with product design, distribution, and promotion decisions to form a consistent and effective marketing program. For our product the same price will be applied in different geographical areas. If a client wants to order our Lazzzerlight Product Machine from Spain or from China, there won’t be price differences. The price will remain the same no matter the country you live in. Of course, we are not responsible for the transport of our product, which means that the client must pay a transport fee according to the country where he lives in. Costs
Costs set the floor for the price that our company can charge for the Lazzzzerlight Product Machine. We want to charge a price that both covers all costs for producing, distributing, and selling the product and delivers a fair rate of return for the effort and risk. A company’s costs may be an important element in its pricing strategy. The initial price for our product is $ 300, but for additional features there will be additional costs, which means that if a client wants to buy the Lazzzzerlight Product Machine with several accessories, there will be an extra charge. We consider ourselves the “low-cost producers” in this industry. Considering that we are a company with lower costs, we have decided that we can set lower prices that result in greater sales and profits. We watch our costs carefully. We consider that if it costs our company more than competitors to produce and sell our product, we will have to charge a higher price or make less profit, and try not to put it at a competitive disadvan¬tage.
External Factors Affecting Pricing Decisions
The Market and Demand
Costs set the lower limits of prices, while the market and demand set the upper limit. Both consumer and industrial buyers balance the price of a product or service against the benefits of owning it. Before setting the final price for our product we had to understand the relationship between the price and the demand for our product. At the beginning we shall see the people’s reaction toward the Lazzzzerlight Product Machine. Other External Factors
When setting the final price, we must also consider other factors in our external environment. For example, economic conditions can have a strong impact on the results of our company’s pricing strategies. Economic factors such as inflation, boom or recession, and interest rates affect pricing decisions because they affect both the costs of producing a product and consumer perceptions of the product’s price and value. Pricing an Innovative Product
Because we want to price an innovative product, we have chosen the market- penetration pricing method. We consider that rather than setting a high initial price to skim off small but profitable market segments, we want set a low initial price in order to penetrate the market quickly and deeply—to quickly attract a large number of buyers and win a large market share. Several conditions favour setting a low price. The market must be highly price-sensitive so that a low price produces more market growth. Production and distribution costs must fall as sales volume increases. And the low price must help to keep out the competition. Discount Pricing and Allowances
We have decided to adjust our basic price to reward customers for certain responses, such as early payment of bills, volume purchases, and buying off-season. These price adjustments—called discounts and allowances are also meant to attract new customers. Moreover there is a sustainability price focus. For the environmental friendly costumers, we offer an allowance, which means that they can bring their used filters to get a 30% discount on the order of a Lazzzerlight Product Machine filter. This is a limited offer, which means that only the first 100 buyers will benefit from this offer. And because we created a product to ease the ladies work around the house, we do have an offer focused on women. On women related national days there will be offered a 10% discount for the Lazzzerlight Product Machine.