Retail Prices

The price at which the product is sold to the end customer is called the retail price of the product. Retail price is the summation of the manufacturing cost and all the costs that retailers incur at the time of charging the customer.

Factors Influencing Retail Prices

Internal factors that influence retail prices include the following −

Manufacturing Cost − The retail company considers both, fixed and variable costs of manufacturing the product. The fixed costs does not vary depending upon the production volume. For example, property tax. The variable costs include varying costs of raw material and costs depending upon volume of production. For example, labor.

The Predetermined Objectives − The objective of the retail company varies with time and market situations. If the objective is to increase return on investment, then the company may charge a higher price. If the objective is to increase market share, then it may charge a lower price.

Image of the Firm − The retail company may consider its own image in the market. For example, companies with large goodwill such as Procter & Gamble can demand a higher price for their products.

Product Status − The stage at which the product is in its product life cycle determines its price. At the time of introducing the product in the market, the company may charge lower price for it to attract new customers. When the product is accepted and established in the market, the company increases the price.

Promotional Activity − If the company is spending high cost on advertising and sales promotion, then it keeps product price high in order to recover the cost of investments.

External prices that influence retail prices include the following −

Competition − In case of high competition, the prices may be set low to face the competition effectively, and if there is less competition, the prices may be kept high.

Buying Power of Consumers − The sensitivity of the customer towards price variation and purchasing power of the customer contribute to setting price.

Government Policies − Government rules and regulation about manufacturing and announcement of administered prices can increase the price of product.

Market Conditions − If market is under recession, the consumers buying pattern changes. To modify their buying behavior, the product prices are set less.

Levels of Channels Involved − The retailer has to consider number of channels involved from manufacturing to retail and their expectations. The deeper the level of channels, the higher would be the product prices.

Price Sensitivity

Price sensitivity can be defined as the degree to which consumers' behaviors are affected by the price of the product or service. Price sensitivity is also known as price elasticity of demand and this means the extent to which sale of a particular product or service is affected.

Price sensitivity is the degree to which the price of a product affects consumers' purchasing behaviors. Generally speaking, it's how demand changes with the change in the cost of products.

Low price sensitivity means that they are more willing to pay more for your product or service. ... The higher the price sensitivity, the more the customer is in control.

Price sensitivity is the degree to which demand changes when the cost of a product or service changes.

Price sensitivity is commonly measured using the price elasticity of demand, which states that some consumers won't pay more if a lower-priced option is available.

The importance of price sensitivity varies relative to other purchasing criteria; quality may rank higher than price, making consumers less susceptible to price sensitivity.


A situation where two or more people or organizations are trying to achieve, obtain, etc. the same thing or to be better than somebody else

Rivalry between two or more businesses striving for the same customer or market. ... The definition of a competition is a contest, sports match or rivalry. The Super Bowl is an example of a competition. American Idol is an example of a competition.

Competition is the rivalry between companies selling similar products and services with the goal of achieving revenue, profit, and market share growth. Market competition motivates companies to increase sales volume by utilizing the four components of the marketing mix, also referred to as the four P's.

When firms compete with each other, consumers get the best possible prices, quantity, and quality of goods and services. Antitrust laws encourage companies to compete so that both consumers and businesses benefit. One important benefit of competition is a boost to innovation.

There are four types of competition in a free market system: perfect competition, monopolistic competition, oligopoly, and monopoly.

Legal Constraints

Any constraints that are deemed legal constraints are simply restrictions and constraints that are enforced by the law. These will often be enforced by Laws or Acts that state the regulations that must be followed. These will often be things that are harmful, wrongly influential or simply unpleasant for the viewer.

Businesses must work within the legal constrains that govern them to avoid potentially costly legal violations.

Business Structure

When starting a new business, choosing a legal structure for the business is one of the most important decisions that managers make. A business's legal structure affects how profits are distributed to owners and how the business is taxed. Common business structures include: sole proprietorships, partnerships, corporations and limited liability companies. In sole proprietorships, limited liability companies and partnerships, business income flows directly to the personal income tax returns of the owners, while corporations are distinct legal entities that pay taxes themselves.

Licenses and Industry Regulation

A business may be constrained by a variety of licensure and other regulatory requirements, based on the industry and activities the business wants to pursue. For example, a lawyer must obtain a legal license in a particular state before he can open a practice in that state.

Labor Laws

Small businesses often hire employees as they expand to handle day-to-day tasks and enable managers to focus on crafting overall company strategy and policies. Businesses are subject to a variety of labor laws that impact how they must pay and interact with employees

Intellectual Property

Intellectual property describes creations of the mind, such as new inventions; works of art and literature; and works, phrases or symbols that a company uses to distinguish its goods and services. Intellectual property laws limit a company's ability to use inventions, designs and other intellectual property created and used by others, but it may also safeguard its own intellectual property against unauthorized use.

Created By
Parle Kalyan Chakravarty


Created with images by Devi Puspita Amartha Yahya - "untitled image" • Caroline Attwood - "Vegetables for Sale" • Laurentiu Morariu - "untitled image" • Tingey Injury Law Firm - "Lady Justice background."