When Setting Price for Their Products - the Company Consider Its External Environment

Question 1

When setting price for their products, the company consider its external environment. Describe four parts of the external environment and how they affect businesses.

Price refers to amount of money or goods, asked for or given in exchange for products or services that exchange for the benefits of having or using the products or services. It is one of the elements in the Four P’s found in marketing mix. The other three aspects are product, promotion and place.

Price setting of a product refers to a new launch product by the company setting a reasonable price according to the marketing survey. There are four parts of the external environment that are taken into consideration.

Types of markets

All businesses are competing in a market. Products that are sold in a market will determine the type of competition producers engage in. Markets are defined by the way in which producers compete for customers of their products. Markets are structured in four different ways.

1.) Pure Competition

In pure competition, anyone is able to product a products for sale to any of the consumer who wishes to buy. Pure competition occurs when producers and many consumers create a market price, a price that is agreeable between both parties. This pure competition is based on the law of supply and demand: producers attempt to make the highest profit they can on their products, and consumers search the market for the lowest price on the products they want. This type of competition results in profits for producers and a variety of desirable products for consumers. No single producers or consumers can influence the price and thus, this market does not require much time constructing strategy.

2.) Monopolistic competition

In Monopolistic competition, it is created when some potent companies dominate manufacture a product. It is usually done by advertising their product is different or better than all of the other products of the same type after comparing. Wealthy companies can use advertising to drive out smaller companies and monopolize a market. For example, it is true that all toothpastes are made with Sodium fluoride, some people buy ‘Colgate’ instead of ‘Darlie’ because people think that ‘Colgate’ toothpaste is better than other toothpastes in the market that contain the same ingredient. Another example is Nike running shoes although there are many running shoes in the market using the same material but consumer chose to buy Nike instead of other brands.

3.) Pure Monopoly

A pure monopoly is often called a natural monopoly. These forms of business competition exist when only one company provides a good or service that consumer’s demand. Governments