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3 factors that influence the rate of return essay

Article shared by The factors affecting pricing decisions are varied and multiple.

  1. Higher interest rates cause an appreciation. This was due to.
  2. Also, foreign goods will be less competitive and so UK citizens will buy fewer imports.
  3. Revenues depend on consumer and business spending, which vary with interest rates, employment and global economic conditions. Lack of demand and deflation has a negative effect on equity returns.
  4. However, rapid economic growth can lead to higher interest rates. This could lead to lower revenues and profit margins, which would reduce equity returns.

Basically, the prices of products and services are determined by the interplay of five factors, viz. We would like to divide them as Internal Factors and External Factors. Marketing Objectives and Pricing Objectives: Pricing objectives may be as stated earlier — profit objectives return on sales investment and maximisation of profitssales objectives increasing sales volume and increasing market share and maintenance objectives price stabilisation and matching the competition.

Pricing objectives must not be in conflict with the marketing objectives of the firm.

3 Factors That Influence the Rate of Return Essay

Price of a product or service is highly influenced by other elements of marketing mix. The product life cycle through which the product is passing through, or the kind of sale lease versus overnight purchase, or liberal returns policy may be followed. In the introductory product life cycle or liberal returns policy, the price is likely to be high.

If the product requires services and those services are to be provided free, naturally the product will be highly priced. The channels of Distribution, location of warehousing and the transportation involved also influence the price determination. Direct to the customer may enable the manufacturer to charge a lower price, but selling through many intermediaries mean the final price is to be very high to compensate the efforts of intermediaries.

Promotion efforts reflect into final price. If the intermediaries are to undertake promotion work, they will be charged a lower price and vice versa. Cost of a product is the single most important factor to influence the final price.

  1. In addition to understanding price and quantity relationship, the marketer must determine the price elasticity of demand to understand price sensitivity of customers.
  2. If you remember, petrol pump dealers went on strike a number of times and finally the oil marketing companies had to agree the margin for the resellers.
  3. The firm has to take decision on the above question and other allied problems finally setting up the unit keeping in view that the unit cost in producing and distributing of the product or service should be the lowest and the changes of making maximum profits are the brightest. Nearness to the market.

Six steps need to be identified while evaluating cost-price structure: Define the existing price structure; ii. Identify the prices of competing products for each item in the product line; iii. Decide which product items need attention; iv. Identify products and services for price changes; and vi. Define the new price structure in the company.

All the marketers are to make profit. Profit is a function of costs, demand, and revenue. Hence their relationship must be understood by pricing managers. The costs may be fixed costs and variable costs.

Break-even analysis is one unique technique to understand relationship between cost and price. Nature of the market and demand: What is the expectation of the market about the product or services?

What are the Factors Influencing Pricing Decisions in a Market?

What is the demand level for the product at different prices? Market must also be understood whether there is monopoly, perfect competition, oligopoly, monopolistic competition or duopoly. To understand demand, the supplier or marketer prepares demand curves for the product at different prices.

What Factors Influence the Rates of Return on an Investment?

The marketer prepares separate curves for normal products and prestige goods. In addition to understanding price and quantity relationship, the marketer must determine the price elasticity of demand to understand price sensitivity of customers. The competition may arise from different sources: Directly similar products like Coke and Pepsi, available substitutes speed post versus couriers, or unrelated products seeking the same rupee cricket match versus cinema, coke versus juice, new year dinner versus vacation for three days, etc.

Retailers often give price guarantees either by way of price-matching policies prices will not be higher than the prices charged by other retailers or best price policies protecting customers against future discounts. Four strategic options are available to a firm: Build price lower than the competitionHold reduce price if competitor reducesHarvest much greater resistance to match price cuts for the products that are being harvestedand Responsive repositioning to force change in price.

Inflation in economy is an important factor in pricing. In India during the last two years the inflation has been a great burden on the common man and even the government has failed to do anything. During recessionary conditions, the price level also drops, to maintain the same level of turnover.

Identifying Fundamentals

Presently due to increased interest rate by Reserve Bank of India, the manufacturers have to pay a higher cost of capital which will be reflected in the price to be charged. Resellers needs are important in price determination. If you remember, petrol pump dealers went on strike a number of times and finally the oil marketing companies had to agree the margin for the resellers.

It will naturally reflect in the final price to be charged to the consumers. In some cases, like butter, the retailers have to manage facilities like deep freezers which have both a capital cost and operating cost, the manufacturer will have to provide a larger margin to them.

The needs of intermediaries must be kept in mind otherwise product launches may not be viable. The revision follows the increase in retail prices.

  • Term spread, which represents the term structure variable in many researches, is the difference between the yields on long-term and short-term government securities;
  • According to New York University professor Aswath Damodaran, these risks include business risk, project risk and market risk;
  • An investment portfolio fully invested in stocks is likely to suffer in a down economy and during periods of high market volatility;
  • Patelis 1997 for example examined the role of monetary policy in predicting stock returns;
  • While the consumer staples sector would fare well in such an economic recession, the stock returns of other sectors would suffer.

Government regulations include price controls, import duties, quotas and taxes. Recent decline of rupee value vis-a-vis dollar also affects the prices of imported products or products using imported spares.

  • At this optimum point of output all the technical, managerial marketing factors are well balanced;
  • The marketer prepares separate curves for normal products and prestige goods;
  • Investigation of performance of Malaysian Islamic unit fund trusts, comparison with conventional unit fund trusts.

The volatility in international markets also affects the prices at home. The oil marketing companies were left with no alternatives except to increase price of petrol, when the oil prices in international markets went up. Public policy influences of the state include the pricing environment many governments have gone with the winds of inflation — remember, the Sushma Swaraj government of Delhi had to go because of onion price rise. In case of essential drugs the Department of Pharmaceuticals DoP regulates the prices.

  • Size A complete analysis of these factors, will certainly help the entrepreneur to earn maximum profits by reducing the costs;
  • It is the risk-free rate plus beta times a market premium;
  • Search our thousands of essays;
  • Factors affecting international equity return The title of our project is factors affecting international equity return;
  • In the introductory product life cycle or liberal returns policy, the price is likely to be high.

Willingness to pay is important not only for pricing but equally important for new product development, value audits and competitive strategy.

For vertically differentiated product lines, companies are able to charge higher prices. Companies often add a high price product into the line to increase the demand for a product with middle-level price. For products in a horizontally differentiated product line tend to be uniform.

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Retailers charge the same for different flavours of yogurts, same price for clothes of different sizes. All the car manufacturers have different prices to cater to different market segments, namely economy cars, family saloons, executive cars, and so on.

Positioning strategy involves the choice of target market and the creation of a differential advantage. Price can be used to convey this differential advantage and to appeal to a certain market segment. New Product Launch Strategy: While launching new products, price should be carefully aligned with promotional strategy.

High price and high promotion is called a rapid skimming strategy. One company that uses skimming strategy effectively is Bosch. Its skimming Price Policy is supported by a large number of patents, to its launch of fuel injection and anti-lock brake systems. High price skimming and low price penetration may be appropriate in different situations.