The price u pay!

We buy stocks of companies which sell products and services.

As the price goes up, the stock price generally goes up in anticipation of increase in profitability.

Ever wondered how these companies decide the price of their product and services?

Generally we think it is just the cost price plus the profit margin.

However, it is rarely that simple. Given below the influencing factors:-

* Price is what the customers can or will be willing to pay!!!
- Every company will ask for the highest price customers will pay!

* Competition and Availability
- Lack of competition gives the company liberty to jack up the price!

* Image, Quality-perception, Branding
- Higher the quality and brand perception, higher will be the perceived price and hence the price-lable!

* Size of the market at that price
- More the price beyond a level, lesser the sales. Every company decides on how much it can
produce and how much it should produce. After deciding this number, the company decides on the highest price that will still ensure that much of sales!

* Sales Price = Cost Price + Profit
- This traditional and theoretical formula is rarely followed as it is.

* Strategy, Tactics
- Sometimes a product or service is priced strangely. It surprises you. Like Kabir Mulchandani shocked everyone by offering colour television below Rs.10000/- or Reliance offered cell phones in Rs.500/-!! But that is a strategy! A tactic!!

* Milking
- Generally every product or service is priced in a way to milk the market the most. In the beginning of the life cycle of any product, the customer is willing to pay the highest.
Gradually, the price is reduced to expand the circle of buyers more and more. The reduction (with bouts of rejouvenation and refreshing of the product) in price reaches to astonishing level to milk the most.

* Psycho pricing
- Many a times price of the product is decided to influence the psychological reaction of the customer. That explains why Bata priced its product as 299.95 or many others prefer 29 to 30 or 99 to 100!

* Cost v/s Price
- The real cost of a product can be much different (read higher) than the initial price. A Rs.500/- airline ticket costs you more than double after taxes and many additional charges!