Pricing is the process of determining and assigning a price that is commensurate with the value of a product or service. It is a strategic decision that involves several considerations as such costs, market (demand and supply), competitors, brand, the vision of the organization, demography, general business environment, consumer behavior, and lifestyle, traditions and customs of the industry, ethical issues and so on.
- The Market: The general market outlook of the industry within which the entity operates is very important; this is because the economic/commercial viability of the industry will determine the fortune and eventual performance of the business. For instance, if the market statistics reveal that the industry is fast growing, there is a prospect for demand. These variables will ultimately affect pricing decisions;
- Customer: Consumer behavior, preference, and lifestyle are germane in fixing product prices. Businesses now devote resources to data mining, data analysis, profiling, and ranking of the consumer as dynamic pricing strategies to categorize and set differential prices suitable to each class of consumer.
- Disposable Income: This is a major determinant of buyers’ ability to pay. High disposable income implies greater financial strength and vice versa. It makes no economic sense to produce goods for those who could not afford to buy them. Thus, there is a direct correlation between the affordability of a given good/service and disposable income. To the extent that disposable income determines purchasing power, it affects fair pricing;
- Price-sensitivity: Businesses develop a composite price-sensitivity score which is then used in assessing how sensitive customer is to price fluctuations. Price-sensitive customers are generally excluded from the increased price. Those who are indifferent to price changes and with less financial discipline are generally subjected to price hikes;
- Sales Volume: Sometimes quantity sold becomes a strategic objective rather than a price increase. The company may be facing stiff competition and need to increase/maintain product availability in the market. In this scenario, the entity is comfortable with little margin while emphasizing sales volume or turnover;
- Season/Timing: Seasonal fluctuation is a key factor in setting prices. Demand for certain commodities is at its peak during a certain season. For instance, during raining season, goods like an umbrella, rain boots, and raincoats, are likely to be in high demand which automatically drives the price up. Restaurants/eateries/fast-food outfits, groceries, and supermarkets sell more during the yuletide period. This increase in demand can be the basis for setting new price.
- Technology and Innovation: Technological innovations such as the internet, worldwide web, websites, cookies, and data analytics tools such as Power BI, Python, SQL, and PowerQuery are used to amass, sort, classify, analyze, and present data for information and decision-making, notable of which is pricing, Thus availability of relevant data influences pricing decision;
- Ethical Consideration: In pricing, such considerations include concern for possible violation of privacy norms and regulations; fairness, and transparency. The breach of any of these ideals can incur sanction and adversely impact the reputation of the organization.
- Demography: Demographic attributes such as age, region, and country can be used in determining price. For instance, vulnerable people like the aged and children may enjoy discounts on some products. Again, different prices may be set for different regions of the world to different categories of customers.
Finally, fair pricing is an ethical issue as much as a strategic decision. Therefore, it incumbent on organizations to consider relevant factors in setting fair price.