- Factors considered in a Pricing Decision
There are few factors that need to be considered when setting a price for a good or service:
- The price offered by competition.
- Pricing to high customers seek elsewhere.
- Pricing to low costs may not be covered.
- The price the customer is willing to pay.
- The elasticity of the product see section (ii).
- The power, the company has in pricing its good/service see section (v).
- The importance of Price Elasticity
This is very important, it measures the sensitivity of the volume of goods /services sold to the price the company charges. A company has to find the elasticity of the good/service sold and set its price accordingly otherwise, charging too high then the number of goods or services sold will drop and vice versa and the costs may not be covered.
- A good or service is said to be elastic if the change in price has considerable effect on the volume of units sold.
- A good or service is said to inelastic if the change in price has no or minimal effect on the volume of units sold.
- Full-Cost Plus Pricing
Benefits:
- Simple to calculate, this does not need a full accountant to work out the prices and can be done by a trainee/junior.
- When costs raise its simple to put up prices, prices can also be justified to show why prices are what they are.