Factors that should influence a firm’s pricing strategy are categorized in two groups:
(A) Internal factors – As per Cavusgil (1996) , while deciding on the price, firms makes choice based on the actions. Also, sudden changes in these decisions are also not considered realistic for any business. For example, increase in output reduces the cost of producing any goods but this may take time for any organization to decide because this kind of change needs a change at the organization with longer timeframe (De Mooij , 2010 ; Narayandas et. al., 2000). Hence, a few internal factors are such as
1. Cash flow – Most of the organizations make sure appropriate flow of cash during production and marketing for a product. For example, when any new product is launched, pricing strategies are designed in such a way to establish the product.
2. Profit Maximization – For example, for products which retained in the market for longer duration, the pricing is optimized to support the strategy.
3. Return on Investments objectives – For example, a product should achieve the minimum amount of returns as the firm spends on the promotion of a product.
4. Consideration to market share, various costs such as fixed cost, variable cost etc. to retain in the existing markets.
(B) External factors – These are considered to see what’s the need of the market and different market segments, such as –
a. Customer needs and expectations – For example, customer always compare the worthiness of a product when they look on the pricing of a product (Holt, 1995). Hence, firms needs to perform research to check what price may suits a customer or a channel partner.
b. Demand elasticity – This is very well need to understand as the change in price happens, this changes the overall buying cost.
c. Competitor’s pricing offers – It is important to assess what kind of competition exists in the market. For example, products which are market leaders, may not get affected by the competition (Zukin , 2003)
d. Comparison of similar and related products and their pricings
e. Primary and complementary product pricing – For example, mobile accessories along with the mobile set.
f. Organizations should be aware of the government rules and regulations to overcome the legal terms and conditions. For example, sales tax.
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