Determinants of Price In a modern money using economy, price refers

to the exchange value of a commodity or service, in terms of money.In the

primitive barter economy, the exchange value of a commodity would be
expressed, in terms of another commodity. According to F.E. Clark, “The price of
an article or service is its market value, expressed in terms of money.” Salient
features of price i) Price is the only element of marketing-mix that generates
revenue for the firm; other elements of marketing-mix viz. product, place (i.e.
channels or distribution) and promotion – give rise to costs. (ii) Price is the most
flexible element; as it can be adjusted quickly. Other elements viz. product, place
and promotion are less flexible to adjust.(iii) Price is a silent information provider.
It helps the customer judge product benefits. In fact, higher prices are taken as
an indicator of higher product quality; specially when the product is new and it is
difficult to measure product benefits objectively.

Major Determinants of Price of a Product: 1) Cost of

Production:The price of the product must be so fixed as to recover the full cost
of production from the price charged; otherwise all production activities will have
to be stopped, in the long-run. (2) Profit-Margin Desired:The price of the
product should include a reasonable (or targeted) margin of profits; to ensure
profitable selling. 3)Competitors’ Pricing:In the present-day competitive
marketing world, no businessman could ignore the pricing policies adopted by
competitors; while doing the pricing his own product. In any case, the price of the
product to be charged by a manufacturer must not be substantially different from
the prices charged by competitors for similar types of products. (4)
Government’s Policy of Price-Control:Where, in particular cases, the
Government has fixed maximum retail prices; the pricing policy followed by a
manufacturer must have to be in tune with governmental regulations, in that
regard. (5) Consumers’ Buying Capacity:a product is made according to the
needs and preferences of target consumers; the pricing of the product must be
done in a manner so as to suit the pocket of the target consumers. In case
otherwise, the product may not appeal to them; and selling the product may
become a „big‟ problem. (6) Product-Life Cycle Stage:While pricing a product,
the manufacturer must pay attention to the particular stage of the product-life
cycle; which a product is passing through. For example, price of the product must
be kept low during introductory stage; it could be slightly raised at the growth
stage and finally at the saturation point, the price must be again lowered. (7)
Demand-Supply Conditions:Whether the price of the product should be high or
low; would much depend on the demand- supply conditions relevant to the
product in question. If demand is more than supply; even a high price might work
well. On the contrary, when demand is less than supply, only a low price could
attract the consumers.