A business must take many factors into account before deciding on the price of a product.
Remember there is a big difference between costs and price. Costs are the expenses of a firm. Price is the amount customers are charged for items.
Firms think very carefully about the price to charge for their products. There are a number of factors to take into account when reaching a pricing decision:
- Customers. Price affects sales. Lowering the price of a product increases customer demand. However, too low a price may lead customers to think you are selling a low quality ‘budget product’.
- Competitors. A business takes into account the price charged by rival organisations, particularly in competitive markets. Competitive pricing occurs when a firm decides…