Why do Prices of Products Vary Across the Globe?

Why do Prices of Products Vary Across the Globe?

One of the most crucial elements in the world of trade is pricing. Setting a price for a product entails giving the item a value. Both the buyer taking the product and the seller giving it away profit from the “worth” in exchange for some bearing when they buy or sell it. Similarly, the consumer pays the seller to purchase the product’s ” value, ” and the seller sells the thing to recover the “value” of the money spent on it.

We use this technique to determine how much a company or seller gets paid when they provide their products or services. In this process, the manufacturer and the consumer collaborate to reach a mutually beneficial price that is also profitable. It depends on several factors, including how much the business spends on supplies, how much a product is worth on the marketplace, how much the consumer needs the product, etc. When starting a firm, all entrepreneurs and producers aim to make a profit. However, the anticipated price may fluctuate depending on the state of the market, the cost of supplementary and complementary goods, and changes in input costs, such as increases in labor and raw material costs.

Before selecting a price for a product, a business should research and analysis on numerous market factors when planning to offer its goods or services on the global market. Before a company can successfully compete in another market, it must first understand its customers, competition, the economic climate, and the political laws that govern that market. We then examine each aspect and what it entails.

Why do prices for the same goods vary so widely around the world? The elements that an organization uses to determine the pricing of a particular product are the key to the answer to that question. Moreover, the pricing policies that the company employs. This article discusses these elements and pricing strategies to understand better why the same products’ prices vary in different countries.

Factors Affecting Product Price Determination:

The following are the primary determinants of a product’s price:

  • Product Cost
    • Level of Market Competition
      • Government and Legal Regulations
      • Pricing Objectives
      • Image of the Company
      • Product Life Cycle
      • Supply and Demand

1) Product Cost:

The most important factor affecting the price of a product is its cost.

When deciding on a price, it is essential to consider all of the expenses associated with the product—its inputs—including the money required for production, testing, and packaging. Costs associated with distribution and promotion also count. Because people must be made aware of a new item when it is released, for instance, its promotion expenses may be very costly. So, the price of an offering may vary depending on where it is in the life cycle of the product. Remember that a product’s life cycle may be in a different stage in different markets. For instance, Koreans believed the iPhone was somewhat outdated and inferior to their current phones, even though sales of the device had been relatively steady in the United States. The cost of opening physical stores to distribute and sell the product will also need to be incorporated into the price the company must charge for it.

The term “product cost” refers to the sum of all fixed, variable, and semi-variable expenses involved in the manufacture, distribution, and sale of the product. Fixed costs are expenses that are constant across all production or sales levels.

For instance, the building rent, salary, etc. Costs that are based on the volume of production or sales are referred to as variable costs.

 Costs that vary with the degree of activity but not directly in proportion are known as semi-variable costs. For instance, a set pay of Rs. 12,000 plus a graded commission of up to 6% is based on increased sales volume.

A commodity’s price is established based on the overall cost. So a company may have to maintain its price below its cost while entering a new market or releasing a new product, but in the long run, if it wants to thrive in a market with fierce competition, it must cover more than its entire cost.

Cost and price have a direct connection. The business sets the product’s pricing using its cost. The company makes sure the price does not drop below the cost because if it did, it would incur losses. The price covers the input costs that a business incurs for raw materials, laborer wages, advertising and promotion expenses, and employee compensation.

2) Level of Market Competition:

The type and extent of market competition are the next major element determining a product’s pricing. If there is little competition for a product, a company may set any price for it.

However, when there is strong competition, a product’s pricing is set based on factors including the features, quality, and price of its competitors’ products. For instance, the MRF Tire Company is unable to set its tire pricing without taking into account those of other tire companies in the market like Bridgestone, etc.

A company’s pricing selections will be greatly influenced by how competitors price and sell their goods. What would you do if you intended to purchase a specific pair of shoes but discovered that another retailer had them for 20% less money? Companies frequently match the prices of their rivals because they want to gain and keep engaged clients. Some merchants, like Home Depot, may give you an additional discount if you discover the identical item for less elsewhere. Similar to this, you can find that other businesses provide free shipping if one. Customers can check the pricing of several merchants before purchasing because there are so many things sold online.

Pricing decisions made by a corporation are also influenced by the availability of alternatives. Would you purchase a similar pair of shoes if you could find them at a third store for 40% less? There is a potential that you might.

3. Government and Legal Regulations:

Companies with market monopolies typically charge high prices for their items. The government intervenes and controls commodity prices to safeguard the interests of the general public; for example, it designates some goods as essential goods, life-saving medications, etc.

Government-mandated prices may be announced for some products; thus the marketer must consider this rule into account when setting prices.

Federal and state restrictions have an impact on pricing decisions. Regulations are intended to safeguard customers, foster competition, and encourage firms to act honorably and fairly.

4. Pricing Objectives:

The pricing goals of any business are as follows:

(a) Profit Maximisation:

Any business’s primary goal is typically to maximize profit. A company can make the most profit in the short term by charging a high price. However, in the long run, a company lowers the price per unit to gain a larger market share and, as a result, generate significant profits through greater sales. 

(b) Achieving Market Share Leadership:

When a company wants to capture a significant portion of the market, it maintains low prices per unit to boost sales.

(c) Surviving in a Competitive Market:

If a company is struggling to survive and is unable to compete, it may turn to free offers, and discounts, or even try to liquidate its stock at BOP (Best Obtainable Price).

(d) Developing Product Quality Leadership:

If a company is supporting the above objective, it will typically demand higher prices to compensate for high quality and high cost.

5. Image of the Company:

The firm’s reputation in the market may also be used to decide the pricing of the product. For instance, because of their strong market reputations, Apple and Microsoft expect a greater premium for their brands.

6. Product life cycle:

The price of a product is also influenced by where it is in its life cycle. For instance, a company may charge a lower price in the beginning to attract clients, then an increase in price throughout the growth stage.

7. The Utility and Demand:

When a product’s price is low, people typically demand more of it, and conversely. However, when a product’s demand is elastic, even small price changes can have a significant impact on the quantity demanded. A change in prices has no impact on the demand when there is inelastic demand. Thus, a company can charge a bigger profit margin under an inelastic demand situation.

Additionally, the customer is willing to pay up until the point at which he believes the product’s utility to be at least equal to the price paid. Thus, a product’s price is influenced by both demand and utility.

How will consumers react? Customers’ perceptions of the product’s value, the number of customers, and their sensitivity to price fluctuations are three crucial variables. Market size information is important, but businesses also need to know how price-sensitive their clients are. Given the product’s pricing, will consumers purchase it? Or will they decide they can live without the good or service because they think the price is too high and the value isn’t comparable? How much customers are willing to pay for the offering is also crucial. Research and intuition are both required to predict how consumers will react to pricing changes.

What impact do supply and demand have on prices?

According to the rule of supply and demand, prices are likely to increase when there is a greater demand than there is for an item or service. In these situations, suppliers frequently produce more to meet demand and seize margin possibilities. Demand for the good is likely to be satisfied as additional suppliers flood the market, and prices often settle at some point.

The law also states that prices tend to decrease when a commodity’s supply exceeds its demand. The price of the commodity rises as more suppliers withdraw, increasing demand. Then, to meet the demand and increase their earnings, suppliers enter the market.

What are pricing strategies?

Pricing strategies are the techniques and methods that companies employ to determine the costs of their goods and services. Product pricing strategy is the process by which you decide what to charge for your products if the price is what you charge for them. There are numerous pricing strategies available, but some of the more popular ones are as follows:

1.Value-Based Pricing

2. Competitive Pricing

3. Price Skimming 

4. Cost-Plus Pricing:

5. Penetration Pricing:

6. Dynamic Pricing

Value-based Pricing

 Value-based pricing involves setting your rates based on what customers believe your product is worth. 

Competitive Pricing

You establish your prices depending on what the competitors are charging when you employ a competitive pricing approach. In ideal situations, such as a business that is just getting started, this can be a solid strategy, but it doesn’t allow much opportunity for expansion.

Price Skimming: 

You will be adopting the price skimming method if you set your prices as high as the market might bear and gradually lower them. The idea is to reach everyone else at the cheaper pricing and skim off the top of the market. 

Cost-Plus Pricing

One of the easiest pricing methods is this one. Simply add a predetermined percentage to the cost of producing the item. Despite being straightforward, it is not great for anything other than actual goods.

Penetration Pricing

It can be challenging for new businesses to establish themselves in marketplaces with intense competition. Some businesses use pricing that is significantly lower than the competitors to promote new products. This is the price penetration technique. While it might bring in some clients and a respectable amount of sales, you’ll need a lot of them and they must be devoted to staying when the price goes up in the future.

Dynamic Pricing:

In some sectors, it’s acceptable to adjust prices often to reflect changes in consumer demand. Customers demand regular monthly or yearly costs, hence this is problematic for subscription-based and SaaS businesses.

Conclusion:

Products’ costs vary across borders. This shift in pricing is influenced by several variables that businesses consider when setting the price for their goods. These elements can be either internal—such as the company’s reputation or its marketing strategies—or external—such as governmental laws and regulations or consumer demand for the goods in a certain market. The pricing of the product is determined by the pricing method the business employs to determine the cost of its goods. Therefore, prices of goods fluctuate on a global scale.

Why do Prices of Products Vary Across the Globe?

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