Setting Prices

When setting prices, the company also must consider other factors in its external environment. Economic conditions can have a strong impact on the firm’s pricing strategies. Economic factors such as boom or recession, inflation, and interest rates affect pricing decisions because they affect both the cost of producing a product and consumer perception of the product’s price and value. The company must also consider what impact its prices will have on other parties in its environment. How will reseller react to various prices? The company should set prices that give resellers a fair profit, encourage their support, and help them to sell the product effectively. The government is another important external influence on pricing decisions. Finally, social concerns may have to be taken into account. In setting prices, a company’s short-term sales, market share, and profit goals may have to be tempered by broader social considerations.Competitors’ Costs, Prices, and offers.

Another external factor affecting the company’s pricing decisions is competitors’ cost and prices and possible competitor reactions to the company’s own pricing moves. A consumer who is considering the purchase of a Canon camera will evaluate Canon’s price and value against the prices and values of comparable products made by Nikon, Minolta, Pentax, and others. If canon follows a high-price, high -margin strategy, it may attract competition. A low-price, low-margin strategy, however, may stop competitors or drive them out of the market

Canon needs to benchmark its costs against its competitors’ costs to learn whether it is operating at a cost advantage or disadvantage. It also needs to learn the price and quality of each competitor’s offer. Once cano...