What factors will (or should) influence a firm’s pricing strategy?

Factors affecting firm’s pricing strategy

There are many factors affecting firm’s pricing strategy that influence the price of a product or service, some internal and some external, and most of them will fluctuate over time. The control which is under the management hand is considered as internal factors whereas the factors that are not under them are external factors.

Let’s dive into some of the internal factors affecting the firm’s pricing strategy.

Firm objectives:

This has a significant impact on the pricing strategy of a firm. Estimating arrangements and systems should be in similarity with the association’s pricing goals. For instance, on the off chance that an organization wants a designated pace of profit from capital investment, the estimating choices are made to the point that the all-out deals income from all items, surpasses the absolute expense by an adequate edge, to give the ideal profit from the complete capital speculation.

Company structure:

Another huge interior component influencing firm’s pricing strategy is the hierarchical design of the firm. For the most part, the top administration has full expertise for outlining estimating destinations and arrangements. A few firms permit laborers’ investment in navigation and hence in such firms, every one of the representatives gives their perspectives and ideas for the estimating strategy. This is useful to the firm assuming the firm has a few items, requiring regular evaluating choices and where costs contrast in various business sectors.

Marketing Mix:

A marketing mix’s four ‘p’s are price, product, promotion, and location. Because these aspects are convolute, a firm’s pricing policy must consider the other components of the marketing mix as well. Furthermore, these elements will fluctuate in response to changing market conditions and will be unique to each market. Marketing research and the marketing information system may be use to develop an acceptable pricing policy.

Product Cost:

Pricing selections are made and depend on production costs. If a product price is below the cost of manufacture, the business must incur a loss. However, the cost of production can be decrease by correctly coordinating the activities of production, and the firm’s price can be cut appropriately.

Product differentiation:

Product differentiation is what distinguishes your product or service from the competition in the eyes of your target market. It’s how you set yourself apart from your competition, and it boosts brand loyalty, revenue, and growth. If a product differs from its competitors through attributes such as a new style, design, packing, and so on, it might command a higher market price.

The external factors that affect the firm’s pricing strategy are:


A firm should always take care of its competitor’s pricing strategy unless it is a monopoly. In a competitive pricing strategy, prices for a product or service are set on the baisis prices of the competition. If consumers perceive your product and your competitor has equal value, then the firm would lose the customer.

Product life cycle:

The stage at which the product is in its product life cycle also affects its price. For example, during the introductory stage, the firm may charge a lower price to attract more custom­ers, and during the growth stage, a firm may increase the price.

Market Demand:

The laws of supply and demand should always be considered while setting the price. If a product is in high demand, then the market can put up with a higher price. Pricing should remain relatively stable over time to attract more customers. At the same time, the firm can allow promotions and discounts when needed.


The cost of goods sold almost always plays an integral role in any firm’s pricing strategy. While fixing the prices, the firm should consider both the variable and fixed costs that are involved in producing the product.

Economic trends

Another unavoidable factor that influences the pricing of the product is a change in the economic trend. Economic factors such as taxation rate, labor cost, inflation rate, currency exchange rate, government’s fiscal and monetary policy will influence the adopted product pricing strategy either positively or negatively.


Unless there are buyers there will be no pricing decision as the firm’s pricing strategy is made according to the buyers’ characters, nature, and preference.


Suppliers help to maintain the pricing strategies in the market for the production sector. The rate of price reduction depends upon the rate of production and the rate of production depends upon the supply of raw materials from the supplier.

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