Here are a few key factors that influence how companies price their goods and services:
- Supply and demand - Companies will adjust prices based on how much of a product or service is available compared to how much customers want. Prices tend to be higher when demand outstrips supply.
- Production and distribution costs - Variable costs like materials, labor, shipping, and overhead contribute to the minimum price needed to profitably provide a product or service.
- Psychological pricing - Retail psychology principles are applied, like making prices end in .99 cents to seem less than they are. This influences perceptions of value.
- Competition - Companies consider competitors' prices when setting their own to remain competitive in the market. Prices may be