question_answer

Suhani has started her business of readymade garments. She manufactures clothe for infants. She uses only the best quality cloth and decides to charge only the minimum possible for her products. Her aim is to provide premium clothing range for the middle-income group. Being new to business, she seeks the help of her uncle, Mr Anil, who is a chartered accountant, to help her fix the price of her product so that she is able to meet the above objectives.

(i) Explain the factors to be considered while fixing the price of a product.

(ii) Explain to Suhani the concept of price mix.

(iii) State any one method of pricing.

Answer:

(i) Suhani should consider following factors while fixing the price of a product: [a] Product Cost This is the most important factor, as the marketing firms are interested in fixing the price of a product, in such a manner that it should cover all the costs of production, distribution and earn a margin of profit too. [b] The Utility and Demand Firstly, the buyer must be ready to pay up to the point where the utility from the product is at least equal to the sacrifice made in terms of the price paid. Secondly, the price of a product affects the elasticity of demand as demand is having an inverse relationship with price. Thus, these two things must be kept in mind while fixing the price. [c] Extent of Competition in the Market Price is settled in the market by the nature and degree of competition. The price tends to be higher when there is a lesser degree of competition and are lower when there is free competition. [d] Government and Legal Regulations In order to protect the interest of consumer against unfair practices in the field of price fixing, Government should regulate the price of essential goods. (ii) Price mix refers to important decisions which are related with the fixing of price of a commodity. (iii) One method used for pricing is cost-plus method.