The basis for determining the selling price

The basis for determining the selling price. In general, there are two main factors that need to be considered in determining the price, namely the company‘s internal factors and external environmental factors.

1. Company Internal Factors

a. Marketing Purpose

The company’s main determining factor in pricing is the company’s marketing objectives. These goals can be in the form of maximizing profits, maintaining company survival, gaining a large market share, creating leadership in terms of quality, overcoming competition, carrying out social responsibility, and so on.

b. Marketing Mix Strategy

Price is only one component of the marketing mix. Therefore, prices need to be coordinated and mutually supportive with other marketing mixes, namely production, distribution and promotion.

c. Biaya

Biaya merupakan faktor yang menentukan harga minimal yang harus ditetapkan agar perusahaan tidak mengalami kerugian. Oleh karena itu, setiap perusahaan pasti menaruh perhatian besar pada aspek struktur biaya (tetap dan variabel), serta jenis-jenis biaya lainnya, seperti out of pocket cost, incremental cost, opportunity cost, controllable cost, dan replacement cost. 

d. Organization

Management needs to decide who in the organization should set prices. Each company handles the pricing problem in its own way. In small companies, prices are generally set by top management.

In large companies, pricing issues are often handled by divisional or product line managers. In industrial markets, sales people are allowed to negotiate with customers to set certain price ranges.

In industries where pricing is a key factor, it is common for companies to have a separate pricing department that reports to the marketing department or top management.

Other parties who have influence on pricing are sales managers, production managers, financial managers, and accountants.

The basis for determining the selling price (foto/special)
The basis for determining the selling price (foto/special)

2. External Environmental Factors

a. Nature of the Market and demand

The basis for determining the selling price. Every company needs to understand the nature of the market and the demands it faces, whether it is a perfectly competitive market, monopolistic competition, oligopoly competition or monopoly competition. Another factor that is no less important is the elasticity of demand.

b. Competition

There are several main forces that influence the competition in an industry, namely competition in the industry concerned, substitute products, suppliers, customers and the threat of new entrants.

For this reason, information is needed in analyzing the characteristics of the competition faced, including the number of companies in the industry, the relative size of each member/number of consumers in the industry, product differentiation, and the ease of entering the industry concerned.

c. Other External Environmental Elements

In addition to the above factors, companies also need to consider economic conditions (inflation, recession, interest rates), government policies and regulations, and social aspects (concern for the environment).

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