In this topic, we shall discuss factors that influence our decisions on pricing strategy. demand and supply influence the price level in these two ways. First, when demand is significantly prevailing over supply, then we should increase our rates. Second, when supplies prevailing over demand, the market puts pressure on us to reduce the prices. level of competition is another key price factor. The lower the competition, the higher prices go.
And vice versa. The higher competition causes rate reductions. The third factor is associated with the number of customers and their purchase behavior. The more customers we have the more options to increase The prices we have. If customers are buying our products or services predominantly online, then the role of the price level increases. And often, we should opt for the lower price level.
If they buy mainly after face to face sales, then the rate should be adjusted upward, depending on the concrete sales in interaction. Cost set our bottom price as it must cover our expenses and secure reasonable profit. Profit is the fifth price factor in our chart. The greater the profit we aim at, the higher the prices. One could argue that bigger profit can be achieved by reducing the price and that's significantly increasing the sold units. This scenario is only possible when we have high price elasticity, economy of scale and or economy of scope.
Economies of scope efficiencies formed by variety. Economies of scale are efficiencies formed by volume price elasticity which we'll investigate further in this course. Quality is easy as it is more expensive to provide higher quality. It goes with higher price. The distribution channel costs are to be paid by the end customer. Naturally, the more expensive channels we use, the higher price we should set.
If you are selling a book via your own website, the costs for this distribution channel will be very low. However, When using bookshop chains, the distribution costs grow to 55% of the book retail price. The last factor is called others and others stands for state regulations, product life cycle, international market rates, currency fluctuations, amendments in tax laws etc