Importance of product factors in pricing

Whilst in theory, standardization in pricing might appear easier to manage and therefore be preferable, in practice the different local economic, legal and competitive factors in each market make it rarely achievable. The occasions when price standardization is achievable are more usually related to the nature of the product and its stage in the life cycle — for example, standardized pricing can be adopted for certain high-tech products where limited competition exists.

Note that when the technology, becomes more freely available, the marketers adopt more market-led pricing. Aircraft makers, for example, because of the relative uniqueness and complexity of the technology, tend to charge the same price regardless of where the customer is based. However, in contrast, shipbuilders, with products in the mature phase of the product life cycle, adapt prices to meet each particular purchase situation.

In developing pricing strategies, a company needs to be aware of the price dynamics of specific products in the various markets. Five characteristics of the product are important in pricing:

  • Frequency of purchase: Frequently purchased products, for example, baby food, petrol, tea and bread, tend to be very price-sensitive in all international markets, whereas occasional purchases are not.
  • Degree of necessity: If a product is essential for its users, price changes are unlikely to affect the market size, except in countries where extreme poverty exists and people cannot afford even the most basic necessities.
  • Unit price: High-priced products such as holidays and cars are evaluated in greater detail in terms of the consumer’s perceptions of value for money, and so for example, reliability, style and features of cars are extremely important to consumers besides price.
  • Degree of comparability: Consumers are less price-conscious about insurance policies than grocery products, because the alternatives are more difficult to compare. Price-setting is particularly difficult in certain services, such as advertising, consultancy and accountancy, which have a different perceived value from country to country.
  • Degree of fashion or status: The high prices of luxury goods are seen as establishing their quality and it is usually the goods that have a prestige image, often created in other countries, which are not price-sensitive.