Internal factors affecting pricing decision

Generally, internal factors can be controlled or altered. There are certain internal factors like organizational policies, differentiation in services, cost or service and marketing mix that affects pricing decision a lot. They are discussed briefly below.

Internal factors affecting pricing decision

1. Organizational policies: Organizational policies provide guidelines for taking decisions. The pricing policies differ from one organization to another. A firm may prefer a particular public image through its pricing policies. Pricing policies are the internal factors that influence pricing. Pricing strategy reflects the overall objective of the organization also.

2. Service differentiation: Services are intangible in nature. When services are uniform in nature, the service provider intends to differentiate his service from that of his competitor. Pricing is used for service differentiation. This differentiation helps the customers assess to the value of services they receive.

Differentiation adds value to services and differentiation for a brand is achieved. Brand will become the main discriminator and the consumer’s choice will depend less on evaluation of the functional benefits.

3. Service cost: Service marketers need to understand the costs of providing services. They should identify fixed and variable costs involved in provision of services. In addition, semi-variable costs exhibit mixed behavior. Fixed costs are not subjected to the level of output and they remain fixed for a period of time. Variable costs vary according to the quantity of the service provided. Variable costs include wages to part-time workers,  other utilities such as expendable supplies, electricity, postage, etc.

Some costs have elements which are partly fixed and partly variable. Telephone costs, salaried staff used for overtime work etc., are some examples for semi-variable costs.

4. Marketing mix: Marketing mix is a combination of different submixes of the marketing mix. They include product mix, promotion mix, price mix and the place mix. The term marketing mix has been extended to include submixes like people, physical evidence and process. The price of the service is influenced by the nature of the service idea which may be new or an established one.

The price of the service depends upon the channels of distribution. The service provider may be the main provider, an agent or a sub-agent. The pricing of service is largely affected by the pricing objective for service lines. The pricing objectives include, maximization of profits, survival, prestige and desired return on investment.