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¡°Critically evaluate the factors a firm might consider when setting the prices of its products¡±
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¡°Critically evaluate the factors a firm might consider when setting the prices of its products¡± According to Marcouse (1999) ¡°price is one of the main links between the customer and the producer¡±. The simplest definition of price is the amount charged for a product or service. Setting the right price of a product is very important for a firm because is the only element in the marketing mix that produces revenue. It can also be very difficult to determine the right price of a product because there are several factors that a firm might consider before putting the price. The examination of these factors is vital for a firm because if the price is not ¡®right¡¯ (for the consumers) they may lose customers or lose revenue. Therefore, I will critically evaluate some of the internal and external factors a firm might consider when setting prices. Source: Kotler and others (1994) The graph above shows the various factors affecting the price decisions of a product. If a firm wants to set the right price for its products it must considerate these factors in order to do so. The pricing decisions are made by evaluating the internal factors (marketing objectives, marketing mix strategy, costs and organisation for pricing) and the external factors (nature of the market and demand, competition and other environmental factors). The Marketing Objectives are significant when setting prices because different firms may differ in their objectives. There are a lot of objectives a firm may have but the clearer a firm is about its objectives, the easier is to determine the prices of its products. The most common objectives are: survival, profit maximisation, market-share leadership and product-quality leadership. If the main objective of a firm is the survival of the company, the price of its product must be low and profit is not as important as the survival of the firm; for example the Sega Dreamcast, being a more powerful console than the Sony Playstation one, was struggling to survive because it was not doing very well in the video-games market. Sega lower the console prices at the same level of the Playstation one but they could not afford their losses so they had to remove its product from the market. Profit Maximisation consists in setting prices high in order to obtain maximum welfare from the products. IBM is a great example to describe this type of marketing objective; they sell their computers at high prices even when competitors offer the same or almost the same characteristics for their computers.
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