Factors Influencing Price Cost To make a profit, the price must cover the costs. There are fixed costs (such as rent) and variable costs (such as materials and components). If a company tenders for a contract, why is it important for them to cover their costs? Demand This can determine what people are willing to pay for a product. If it is high then businesses can raise prices, and if it is low then businesses will have to lower them. What were SoundTech able to do with Tracy Island in the build up to Xmas and why? Market and Competition If your market has lots of firms selling similar products then your prices have to be competitive. If you offer a different product, you will be able to charge more. If you are an insurance company who is on a price comparison website, how would you stay competitive? Company’s Objective and Approach If a company is looking to gain a large share of the market and make its product well known, then it needs penetration pricing and a low price. If it is marketing a high quality, top of the range product, it will be able to charge a high price. What do you think Apple’s objectives are, and how do you think this affects their pricing strategy? Product Life Cycle The price that can be charged will probably change at different stages of the product lie cycle. When demand is high in the growth phase a business will be able to charge more, and as it declines they will charge less. How do the different stages of Apple’s products in the life cycle determine their price? Rest of the Marketing Mix Price must fit in with the other elements of the marketing mix. If you are promoting a luxury product, then your pricing must reflect this, and if your product is mass-produced and designed for low earners, your price must also reflect this. How do you think Paco Rabbane priced their product in line with their advertising and why?