1. Internal Factors

Internal factors are internal to organization and, hence, are controllable. These factors play vital role in pricing decisions. They are also known as organizational factors. Manager, who is responsible to set price and formulae pricing policies and strategies, is required to know adequately about these factors.

(i) Top Level Management

Top-level management has a full authority over the issues related to pricing. Marketing manager’s role is administrative. The philosophy of top-level management is reflected in forms of pricing also. How does top management perceive the price?

How far is pricing considered as a tool for earning profits, and what is importance of price for overall performance? In short, overall management philosophy and practice have a direct impact on pricing decision. Price of the product may be high or low; may be fixed or variable; or may be equal or discriminative depends on top-level management.

(ii) Elements of Marketing Mix

Price is one of the important elements of marketing mix. Therefore, it must be integrated to other elements (promotion, product, and distribution) of marketing mix. So, pricing decisions must be linked with these elements so as to consider the effect of price on promotion, product and distribution, and effect of these three elements on price.

For example, high quality product should be sold at a high price. When a company spends heavily on advertising, sales promotion, personal selling and publicity, the selling costs will go up, and consequently, price of the product will be high. In the same way, high distribution costs are also reflected in forms of high selling price.

(iii) Degree of Product Differentiation

Product differentiation is an important guideline in pricing decisions. Product differentiation can be defined as the degree to which company’s product is perceived different as against the products offered by the close competitors, or to what extent the product is superior to that of competitors’ in terms of competitive advantages. The theory is, the higher the product differentiation, the more will be freedom to set the price, and the higher the price will be.

(iv) Costs

Costs and profits are two dominant factors having direct impact on selling price. Here, costs include product development costs, production costs, and marketing costs. It is very simple that costs and price have direct positive correlation. However, production and marketing costs are more important in determining price.

(v) Objectives of Company

Company’s objectives affect price of the product. Price is set in accordance with general and marketing objectives. Pricing policies must the company’s objectives. There are many objectives, and price is set to achieve them.

(vi) Stages of Product Life Cycle

Each stage of product life cycle needs different marketing strategies, including pricing strategies. Pricing depends upon the stage in which company’s product is passing through. Price is kept high or low, allowances or discounts are allowed or not, etc., depend on the stage of product life cycle.

(vii) Product Quality

Quality affects price level. Mostly, a high-quality-product is sold at a high price and vice versa. Customers are also ready to pay high price for a quality product.

(viii) Brand Image and Reputation in Market

Price doesn’t include only costs and profits. Brand image and reputation of the company are also added in the value of product. Generally, the company with reputed and established brand charges high price for its products.

(ix) Category of Product

Over and above costs, profits, brand image, objectives and other variables, the product category must be considered. Product may be imitative, luxury, novel, perishable, fashionable, consumable, durable, etc. Similarly, product may be reflective of status, position, and prestige. Buyers pay price not only for the basic contents, but also for psychological and social implications.

(x) Market Share

Market share is the desired proportion of sales a company wants to achieve from the total sales in an industry. Market share may be absolute or relative. Relative market share can be calculated with reference to close competitors. If company is not satisfied with the current market share, price may be reduced, discounts may be offered, or credit facility may be provided to attract more buyers.