Question

In addition to setting a pricing objective, a firm has to look at a number of factors before setting its prices. These factors include the offering’s costs, the customers whose needs it is designed to meet, the external environment—such as the competition, the economy, and government regulations—and other aspects of the marketing mix, such as the nature of the offering, the stage of its product life cycle, and its promotion and distribution. In international markets, firms must look at environmental factors and customers’ buying behavior in each market. For a company to be profitable, revenues must exceed total costs.

Answer the following questions. Each response must be written in essay format to include 4-5 complete sentences.

1. What factors do organizations consider when making price decisions?
2. How do a company’s competitors affect the pricing decisions the firm will make?
3. What is the difference between fixed costs and variable costs?

Answer 1

Customers are willing to pay what they think something is worth and don't really care about your costs. If your costs push prices above their perceived value, they simply won't buy. If the perceived value is much higher than your costs, they'll happily pay a price that gives you a huge margin. One of the best examples of this is in retail clothing.