Factors that Influence Product Pricing Strategy

Internal and External Factors Influencing Business Pricing Decisions

Product pricing strategy is basically how you make decisions on best prices for your goods and products and it is a good and strong competitive advantage to a business that has good product pricing strategy.

A business with good product pricing strategy will dominate the market. Whether your business is a big or small one, you need to make strategies on how to sell and make income which includes the pricing strategy.

Below are factors that influence your product pricing strategy:

(1) Market Situation

Since product prices goes along with the market situation therefore market situation is a factor that influences product pricing strategy, you need to study the market especially your competitors and their product prices so you can reflect the value of your products as opposed to that of your competitors.

You also need to consider what the market can afford to pay for your products so that you can maximize your profits without affecting the market and the environment surrounding your business.

(2) Competitors

The strength of your competitors in terms of pricing is another factor that will influence your own product pricing strategy because you will not want your pricing strategy to be weak compared to your competitors, it should be of the same strength with theirs or even stronger than their own.

You also need to know the strength and weaknesses of your competitors so you can stand up to them at any time and also challenge them.

Also, the level of competition also influences product pricing strategy because selling your products with high margin is quite impossible unless you have a monopoly market which also does not exist anymore.

Therefore you can’t sell your products without considering your competitors or else your business might be affected especially when you want to sell at your own desired profit margin and your competitors are selling at a lower price. You should also note that the more competitors you have, the more flexible your product pricing strategy will be.

(3) Economic Factors

It is a common knowledge most especially to business owners and entrepreneurs that economic factors like tax rate, inflation rate, labour cost, currency exchange rate, fiscal policy and so on influences the price of products in the market.
These factors affect your product pricing strategy negatively or positively based on what you spend on them.

(4) Product Value

Another factor you should consider before setting a product pricing strategy is the value of your products or better still, the perceived value of your products, you need to know how your customers see your products and its value which can be known administering questionnaires to customers, interviewing customers, etc.

Knowing the value of your product to customers is important because customers have this notion that low price goes with low quality products meaning that if your product has very low prices, they tend to believe that the things you used to produce the goods are not good enough.

Therefore making your products have a low quality therefore you need to make a balance between your price and the perceived value by customers.

(5) Development Cost

The money you spend to produce and develop your products also influences the product pricing strategy, nobody will give his or her product prices below the actual cost price including the money you spend on research and experimentation in the process of developing the products, you will even add money to it for profit making therefore it influences it.

The higher the cost price, the higher the product price. If the business is a new one, that is, you are producing new products you will need lots of money on research, experimentation and so on which will bounce back on the selling price of your products, the reasons why the products will have high cost are:

• There is no competition yet since the product is a new one which gives you the chance to sell at whatever price you want.

• Also, because of the huge money spent on research, experiments, and development of the product.

(6) Customers’ Demographic

This is another factor, some of the demographics you should know are the age bracket of your target customers, their location to your business location, their educational status, etc. because their effects the price of your products. You need to know these things before you decide on the product pricing strategy, it is important you know who you target customer is.

Other factors that influences product pricing strategy are: level of market demand, class of customers targeted whether poor, middle class, or rich, product line pricing, negotiating margin: this also influences the product pricing strategy because customers expect you to reduce prices so therefore they negotiate therefore you need to put it into consideration when deciding on the price of your products.

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