Price is one of the most important elements of marketing mix. Price is the amount of money expected, required, or given in payment for something. It represents the sum of values that consumers exchange for the benefit of having or using the product The marketers have not only to decide about the objectives of price setting but to analyse the factors determining the price and fix a price for the firm’s products.

Factors Affecting Price Determination

There are number of factors which affect the fixation of the price of a product and they are:

1. Product Cost: One of the most important factors affecting price of a product or service is its cost. This includes the cost of producing, distributing and selling the product. The cost sets the minimum rate at which the product may be sold. There are broadly three types of costs: viz., Fixed Costs, Variable Costs and Semi Variable Costs. A product’s price must at least cover the variable cost to get a marginal profit.

2. The Utility and Demand: While fixing price, the utility and demand for the product must be taken into consideration. While the product costs set the minimum limit of the price, a demand of the buyer sets the upper limit of price.

3. Extent of Competition in the Market: The pricing of a product also depends upon the competition for the product. If the product have close substitutes, it cannot fix high price as customers will leave the product and buy its substitute.

4. Government and Legal Regulations: In order to protect the interest of public against unfair practices in the field of price fixing, Government can intervene and regulate the price of commodities. Government can declare a product as essential product and regulate its price. They can also fix price limits within which only one can charge for a product.