Factors influencing the price of a new product 1.

The level Of Competition Most entrepreneurs fancy the concept of selling their products with a very high margin. This idea can only be realistic when you have a monopolistic hold on the market. But if not, you can t sell with your desired profit margin without getting a sting from competition. !. "erceived value of your product This is another factor you must take into consideration before setting a price for your product. #our first step is to ask this $uestion %what is the perceived value of my product in the heart of the customer& #ou must strive to find a good and definite answer to this $uestion before fi'ing a price for your product. The reason perceived value is a critical factor to consider in a product pricing strategy is because customers often associate low price with low $uality. Meaning, if your product is priced too low, the customers tend to feel the materials used in producing the goods is inferior and so therefore, the product is of low $uality. (o before fi'ing a price for your product, make sure you strike a balance between the price of your product and its perceived value. ). "roduct development cost This is definitely a factor you cannot turn a blind eye to. *ith respect to normal business and market economics, you should never price your product below its actual cost price. #our actual product cost price is determined by the total cost of production including ta', divided by the total number of products produced. But in this case, + am not talking about production cost. + am talking about product development cost, a cost incurred from research and e'perimentation, a cost that s usually incurred when bringing an innovative product to the market. +f you are a business owner, you should know that newly introduced products usually command a high price. This high introductory price is based on two reasons.. /conomic trend This is another unavoidable factor that can influence the pricing of your product. + don t even need to stress much on this. 0s an entrepreneur, you should know that economic factors such as ta'ation rate, labor cost, inflation rate, currency e'change rate, government s fiscal and monetary policy will definitely influence your adopted product pricing strategy either positively or negatively. 1. 2evel of market demand This is the fifth factor that can greatly affect your product pricing strategy. 3ust like economic factor, + feel this point is self e'planatory. +n business economics, if demand e'ceeds supply, there tends to be a mad rush for the few available products, thus inflating the price of the

product and vice versa. (ome companies even go as far as creating artificial scarcity in order to gain a stronger hold on the industrial price level. 4. 5emographics The demographics of the targeted customers will indisputably influence the pricing of your product. 5emographic factors to consider before taking a stand on your product price includeThe age bracket of the customers you are targeting.#our business location and customer s location./ducational status of your targeted market To cut it short, demographics is all about who your targeted customer is. 2et me share an illustration with you. 0ssuming your product is a portable bag specifically designed for students. +f the region you are targeting has a population of maybe 166,666 out of which 768 are students. The result is that your product price will be affected positively. But if the case is reversed and you have a population where only 168 are students, you know what to e'pect. 9. Class of targeted customers The class of customers you are targeting will greatly influence the pricing of your product. +n the society, there are three classes of people. The rich, the middle class and the poor or more preferably %low income earners,: who are always the ma;ority in terms of population. 0 product targeted at the rich will surely command a higher price than those targeted at the middle class. +f products targeted at the rich commands a low price, it will be tagged valueless by the rich. (o when devising your product pricing strategy, consider the societal class of your targeted customers first. +t s very important. <or instance, there are cars for the rich and cars for the middle class, both can t be can t be sold in the market place with the same product pricing strategy. Economic liberalization /conomic liberali=ation is a very broad term that usually refers to fewer government regulations and restrictions in the economy in e'change for greater participation of private entities, the doctrine is associated with classical liberalism. Thus, liberalisation in short refers to >the removal of controls>, to encourage economic development.

Most first world countries have pursued the path of economic liberali=ation in recent decades with the stated goal of maintaining or increasing their competitiveness as business environments. 2iberali=ation policies include partial or full privatisation of government institutions and assets, greater labour market fle'ibility, lower ta' rates for businesses, less restriction on both domestic and foreign capital, open markets, etc. +n support of liberali=ation, British "rime Minister Tony Blair wrote that- >(uccess will go to those companies and countries which are swift to adapt, slow to complain, open and willing to change. The task of modern governments is to ensure that our countries can rise to this challenge.

+n developing countries, economic liberali=ation refers more to liberali=ation or further >opening up> of their respective economies to foreign capital and investments. Three of the fastest growing developing economies today, Bra=il, China, and +ndia, have achieved rapid economic growth in the past several years or decades after they have >liberali=ed> their economies to foreign capital.

Many countries nowadays, particularly those in the third world, arguably have no choice but to also >liberali=e> their economies in order to remain competitive in attracting and retaining both their domestic and foreign investments. This is referred to as the T+?O0 factor, standing for >there is no alternative>. <or e'ample, in 1771, +ndia had no choice but to implement economic reforms.@.A (imilarly, in the "hilippines, the contentious proposals for Charter Change include amending the economically restrictive provisions of their 17B9 constitution.

The total opposite of a liberali=ed economy would be ?orth CoreaDs economy with their >selfE sufficient> economic system that is closed to foreign trade and investment Fsee autarkyG. However, ?orth Corea is not completely separate from the global economy, since it receives aid from other countries in e'change for peace and restrictions in their nuclear programme. 0nother e'ample would be oilErich countries such as (audi 0rabia and the Inited 0rab /mirates, which see no need to further open up their economies to foreign capital and investments since their oil reserves already provide them with huge e'port earnings. The adoption of economic reforms in the first place and then its reversal or sustenance is a function of certain factors, presence or absence of which will determine the outcome. (harma F!611G e'plains all such factors. The authorDs theory is fairly generali=able and is applicable to the developing countries which have implemented economic reforms in the 1776s Potential benefits The service sector is probably the most liberalised of the sectors. 2iberalisation offers the opportunity for the sector to compete internationally, contributing to J5" growth and generating foreign e'change. 0s such, service e'ports are an important part of many developing countriesD growth strategies. +ndiaDs +T services have become globally competitive as many companies have outsourced certain administrative functions to countries where costs are lower. <urthermore, if service providers in some developing economies are not competitive enough to succeed on world markets, overseas companies will be attracted to invest, bringing with them international best practices and better skills and technologies. The entry of foreign service providers is not necessarily a negative development and can lead to better services for domestic consumers, improve the performance and competitiveness of domestic service providers, as well as simply attract <5+Kforeign capital into the country. +n fact, some research suggest a 168 cut in service trade barriers over a fiveE to tenEyear period would create global gains in economic welfare of around L!16 billion per annum.

Potential risks of trade liberalization #et, trade liberalisation also carries substantial risks that necessitate careful economic management through appropriate regulation by governments. (ome argue foreign providers crowd out domestic providers and instead of leading to investment and the transfer of skills, it allow foreign providers and shareholders >to capture the profits for themselves, taking the money out of the country>.@9A Thus, it is often argued that protection is needed to allow domestic companies the chance to develop before they are e'posed to international competition. Average cost curve is u-shaped +n economics, average cost or unit cost is e$ual to total cost divided by the number of goods produced Fthe output $uantity, MG. +t is also e$ual to the sum of average variable costs Ftotal variable costs divided by MG plus average fi'ed costs Ftotal fi'ed costs divided by MG. 0verage costs may be dependent on the time period considered Fincreasing production may be e'pensive or impossible in the short term, for e'ampleG. 0verage costs affect the supply curve and are a fundamental component of supply and demand. Short-run average cost 0verage cost is distinct from the price, and depends on the interaction with demand through elasticity of demand and an average cost due to marginal cost pricing. (hortErun average cost will vary in relation to the $uantity produced unless fi'ed costs are =ero and variable costs constant. 0 cost curve can be plotted, with cost on the yEa'is and $uantity on the 'Ea'is. Marginal costs are often shown on these graphs, with marginal cost representing the cost of the last unit produced at each point, marginal costs are the slope of the cost curve or the first derivative of total or variable costs. 0 typical average cost curve will have a IEshape, because fi'ed costs are all incurred before any production takes place and marginal costs are typically increasing, because of diminishing marginal productivity. +n this >typical> case, for low levels of production marginal costs are below average costs, so average costs are decreasing as $uantity increases. 0n increasing marginal cost curve will intersect a IEshaped average cost curve at its minimum, after which point the average cost curve begins to slope upward. <or further increases in production beyond this minimum, marginal cost is above average costs, so average costs are increasing as $uantity increases. 0n e'ample of this typical case would be a factory designed to produce a specific $uantity of widgets per period- below a certain production level, average cost is higher due to underEutilised e$uipment, while above that level, production bottlenecks increase the average cost.

Long-run average cost

The long run is a time frame in which the firm can vary the $uantities used of all inputs, even physical capital. 0 longErun average cost curve can be upward sloping, downward sloping, or downward sloping at relatively low levels of output and upward sloping at relatively high levels of output, with an inEbetween level of output at which the slope of longErun average cost is =ero. The typical longErun average cost curve is IEshaped, by definition reflecting increasing returns to scale where negatively sloped and decreasing returns to scale where positively sloped. +f the firm is a perfect competitor in all input markets, and thus the perEunit prices of all its inputs are unaffected by how much of the inputs the firm purchases, then it can be shown that at a particular level of output, the firm has economies of scale Fi.e., is operating in a downward sloping region of the longErun average cost veG if and only if it has increasing returns to scale. 2ikewise, it has diseconomies of scale Fis operating in an upward sloping region of the longErun average cost curveG if and only if it has decreasing returns to scale, and has neither economies nor diseconomies of scale if it has constant returns to scale. +n this case, with perfect competition in the output market the longErun market e$uilibrium will involve all firms operating at the minimum point of their longErun average cost curves Fi.e., at the borderline between economies and diseconomies of scaleG. +f, however, the firm is not a perfect competitor in the input markets, then the above conclusions are modified. <or e'ample, if there are increasing returns to scale in some range of output levels, but the firm is so big in one or more input markets that increasing its purchases of an input drives up the inputDs perEunit cost, then the firm could have diseconomies of scale in that range of output levels. Conversely, if the firm is able to get bulk discounts of an input, then it could have economies of scale in some range of output levels even if it has decreasing returns in production in that output range. +n some industries, the 2N0C is always declining Feconomies of scale e'ist indefinitelyG. This means that the largest firm tends to have a cost advantage, and the industry tends naturally to become a monopoly, and hence is called a natural monopoly. ?atural monopolies tend to e'ist in industries with high capital costs in relation to variable costs, such as water supply and electricity supply.2ong run average cost is the unit cost of producing a certain output when all inputs are variable. The behavioral assumption is that the firm will choose that combination of inputs that will produce the desired $uantity at the lowest possible cost. Relationship to marginal cost *hen average cost is declining as output increases, marginal cost is less than average cost. *hen average cost is rising, marginal cost is greater than average cost. *hen average cost is neither rising nor falling Fat a minimum or ma'imumG, marginal cost e$uals average cost.Other special cases for average cost and marginal cost appear fre$uently-

Constant marginal costKhigh fi'ed costs- each additional unit of production is produced at constant additional e'pense per unit. The average cost curve slopes down continuously, approaching marginal cost. 0n e'ample may be hydroelectric generation, which has no fuel

e'pense, limited maintenance e'penses and a high upEfront fi'ed cost Fignoring irregular maintenance costs or useful lifespanG. +ndustries where fi'ed marginal costs obtain, such as electrical transmission networks, may meet the conditions for a natural monopoly, because once capacity is built, the marginal cost to the incumbent of serving an additional customer is always lower than the average cost for a potential competitor. The high fi'ed capital costs are a barrier to entry. Two popular pricing mechanisms are 0verage Cost "ricing For Nate of Neturn NegulationG and Marginal Cost "ricing. 0 monopoly will produce where their average cost curve meets the market demand curve under 0verage Cost "ricing, referred to as the 0verage Cost "ricing /$uilibrium. Conversely, the same assersion can be made for Marginal Cost "ricing. Minimum efficient scale K ma'imum efficient scale- marginal or average costs may be nonElinear, or have discontinuities. 0verage cost curves may therefore only be shown over a limited scale of production for a given technology. <or e'ample, a nuclear plant would be e'tremely inefficient Fvery high average costG for production in small $uantities, similarly, its ma'imum output for any given time period may essentially be fi'ed, and production above that level may be technically impossible, dangerous or e'tremely costly. The long run elasticity of supply will be higher, as new plants could be built and brought onEline.Oero fi'ed costs FlongErun analysisG K constant marginal cost- since there are no economies of scale, average cost will be e$ual to the constant marginal cost. elphi !ethod "#$R% &'$"%# The 5elphi method is a structured communication techni$ue, originally developed as a systematic, interactive forecasting method which relies on a panel of e'perts. The e'perts answer $uestionnaires in two or more rounds. 0fter each round, a facilitator provides an anonymous summary of the e'perts forecasts from the previous round as well as the reasons they provided for their ;udgments. Thus, e'perts are encouraged to revise their earlier answers in light of the replies of other members of their panel. efinition 0n %organi=ed method: for collecting views and information pertaining to a specific area,

(e) characteristics of the elphi method Structuring of information flow The initial contributions from the e'perts are collected in the form of answers to $uestionnaires and their comments to these answers. The panel director controls the interactions among the participants by processing the information and filtering out irrelevant content. This avoids the negative effects of faceEtoEface panel discussions and solves the usual problems of group dynamics. Regular feedback "articipants comment on their own forecasts, the responses of others and on the progress of the panel as a whole. 0t any moment they can revise their earlier statements. *hile in regular group meetings participants tend to stick to previously stated opinions and often conform too much to group leader, the 5elphi method prevents it. Anon)mit) of the participants Isually all participants remain anonymous. Their identity is not revealed, even after the completion of the final report. This prevents the authority, personality, or reputation of some participants from dominating others in the process. 0rguably, it also frees participants Fto some e'tentG from their personal biases, minimi=es the >bandwagon effect> or >halo effect>, allows free e'pression of opinions, encourages open criti$ue, and facilitates admission of errors when revising earlier ;udgments. Applications of the elphi method <irst applications of the 5elphi method were in the field of science and technology forecasting. The ob;ective of the method was to combine e'pert opinions on likelihood and e'pected development time, of the particular technology, in a single indicator. 2ater the 5elphi method was applied in other areas, especially those related to public policy issues, such as economic trends, health and education. +t was also applied successfully and with high accuracy in business forecasting. The 5elphi method has also been used as a tool to implement multiEstakeholder approaches for participative policyEmaking in developing countries. *%+ $% &SE "$, 5efine the problem Jive everyone the problem Collate the responses Jive everyone the collection Nepeat as necessary