Question

Explain the following factors which affect the fixation of price of a product :

(i) Extent of competition in the market

(ii) Marketing methods used

Hint:

Competition limits how far a firm can differ from rival prices, and the cost and image created by marketing methods also shape the price.

Answer 1

Step 1: Why price is influenced by many factors:
The price of a product depends on several forces. Two of them are explained here.

Step 2: (i) Extent of competition in the market:
The number and strength of rivals affect how freely a firm can set its price.
When there are few sellers, a firm can set a higher price. When many firms sell similar goods, the price stays close to the market level.
A firm that charges much more than rivals may lose its buyers.

Step 3: (ii) Marketing methods used:
The price is also linked with the other elements of the marketing mix such as the quality of the product, the type of packaging, the channel and the promotion.
A product sold with a heavy advertising budget or with a costly distribution system needs a higher price to recover the expense.
A product with a premium image and fine service can also carry a higher price.

Final Answer:
The price depends on how tough the competition is and on the marketing methods that add to the cost and the image of the product.