Pricing The Product

The two basic components that affect product pricing are costs of manufacture and competition in selling. It is unprofitable to sell a product below the manufacturer’s production costs and unfeasible to sell it at a price higher than that at which comparable merchandise is being offered. Other variables also affect pricing. Company policy may require a minimum profit on new product lines or a specified return on investments, or discounts may be offered on purchases in quantity.

Attempts to maintain resale prices were facilitated for many years in the United States under federal and state fair trade laws. Since 1975, however, these laws have been nullified, thereby prohibiting manufacturers from controlling the prices set by wholesalers and retailers. Such control can still be maintained if the manufacturers wish to market directly through their own outlets, but this is seldom feasible except for the largest manufacturers.

Attempts have also been made, generally at government insistence, to maintain product-price competition in order to minimize the danger of injuring small businesses. Therefore, the legal department of a marketing organization reviews pricing decisions.