The price of the product is generally affected by number of factors. Therefore before deciding the price the marketer has to keep in mind the factors affecting the price. Generally they are divided into two parts:

Internal factors and external factors:

Internal factors affecting pricing policy:

1.)    Marketing objectives: before setting the price the company has to keep in mind the marketing objective of the product. Whether the product is for high class, middle class or lower class.

2.)    Marketing mix: price is one of the key elements of marketing mix. Other elements of marketing mix also affect the pricing decision. So the marketer must consider the marketing mix while setting the price.

3.)    Cost:  cost forms the base for the price. A company must consider both fixed as well as variable cost while setting the price.

4.)    Organizational set up: pricing decisions depends upon the organizational set up. In large scale organizations the price is decided by the product manager while in the small organization the price is decided by the top management.

External factors affecting pricing policy:

1.)    Market and demand: cost set the lower limit of the price. While the market and demand set the upper limit. So it is very necessary for the marketer to keep in mind the relationship between price and market & demand.

2.)    Competition: pricing decision is affected by the act of competition. The marketer must keep an eye on the activities of the competitor. Some companies go for price leadership, while other goes for low pricing decision to wipe of the competitors from the market.

3.)    Other environmental factors: while deciding the price of the product the company has to keep in mind the the other environmental factors also like:

Ø      Economic conditions of the country like boom, recession, inflation etc.

Ø      Consumer perception regarding the product.

Ø      Government policy also affects the pricing policy.

Ø      Distribution channel also have an effect on the price of the product.

Therefore all these are the important factors which affect the pricing policy.