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Marketing — Business Studies STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceBusiness StudiesMarketing3 Marks
Question
Discuss in brief how do the below mentioned points influence price determination.
  1. Objective.
  2. Cost.
  3. Competition.
  4. Buying motives.
✓

Answer

The effect of various factors on price determination is:
  1. Objective: Price of a product depends upon the firm's objective. A firm may decide out of several objectives, e.g. profit maximisation, a specific level of profit, target level of sales, a particular share of the market, prevailing market price, etc. The price fixed for the product must be in line with the firm's pricing objective.
  2. Cost: Essentially, retail prices are cost of production and distribution plus the profit margins. No business can survive for long without covering its costs. In the long-run, price should cover the total cost per unit, but in the short-run, price should cover variable cost of production.
  3. Competition: Prices charged by competitors often act as the guide in a pricing decision. e.g. Maruti Udyog has to decide the price of its Zen and Alto cars keeping in view an competing brands like Santro, Indica and Palio.
  4. Buying motives: A customer may pay a high price to satisfy his vanity. This happens when an article is purchased for status or prestige. Price must be consistent with the desired public image of the product.

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