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Created by

VICTOR Mon
VICTOR Mon
Mexico

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by VICTOR Mon
1

volumes plant target market substitute share leader competitive sensitive market market monopolist overheads components segments

The price of a product logically cover its production and distribution costs , including a proportion of the company's fixed cost or , such as rent and interest payments , and leave a small profit . But prices are also influenced by the level of demand , the prices of products , and the prices charged by competitors .

High quality products made with expensive and requiring a lot of craftsmanship are obviously expensive . They also generally require " prestige pricing " as the consumers in their market would not buy them if they thought the price was too low . The markets for most other goods are generally price , i . e . the lower the price , the greater the sales .

But for new products for which there is a sufficiently high demand , companies may choose to set the highest possible price so as to maximize profits . This is known as market - skimming . The price can later be reduced in order to reach further . The opposite strategy is market - penetration , which means setting as low a price as possible so as to increase sales volume and , leading to lower unit production and distribution costs and higher long - run profit . The low price will also discourage competitors .

Companies with overcapacity , intense competition , a large inventory , or a declining market are likely to cut the prices of established products . They are more concerned with keeping the going and staying in business than making a current profit . On the contrary , firms facing rising costs , or in need of cash in the short term , tend to raise prices . A company faced with demand that exceeds supply is also likely to raise its price , like a .

Firms in perfectly markets , or homogeneous - products markets , or small firms in an industry with a strong , are likely to use a going - rate pricing , i . e . they will charge more or less the same price as everyone else , rather than set a price based in estimates of costs or projected demand .

But of course , all prices can be adapted . Most companies offer cash discounts to customers who pay immediately , and quantity discounts to buyers of large . Many products and services are sold at a lower price during an off - season . Retailers often offer some loss - leader prices : they cut the prices of selected products to cost price or below in order to attract customers who also buy other goods . Companies are also often obliged to react to price changes by competitors . They might try to avoid a price war by modifying other elements of the marketing mix . Similarly , they have to anticipate competitors' reactions if they change their own prices .

 
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