Price is an element of the marketing mix that refers to all important decisions relating to the fixation of the price of a product. Some factors that must be taken into consideration are:
1. Production cost: The price should recover all costs viz. fixed costs, variable costs and semi-variable costs apart from obviously including a fair return for undertaking the marketing effort and risk.
2. Utility and demand: While determining the price of any product, the utility provided by it and the intensity of demand should not be ignored. If a buyer is satisfied that the given product meets his/ her requirement, he would also be ready to pay the cost and reasonable margin to the producer.
3. Extent of competition in the market: In the case of monopoly, a firm can enjoy complete freedom in fixing prices. However, if it is facing competition, it should consider the prices charged by the competitors also.
4. Government and legal regulations: Government plays an important role in regulating the prices. For example, Life Saving Drugs, etc.
5. Pricing objectives: Pricing objectives should be in accordance with the company objectives. Also, the company’s objectives should be clear enough. In addition to profit maximisation, pricing objectives may include (a) Obtaining market share leadership (b) Surviving in a competitive market.
6. Marketing methods used: Pricing of products also gets affected by the elements of marketing such as the amount spent on advertisement, type of packaging, discounting policies, credit or finance facilities etc.