When setting a product’s price, businesses must consider both internal and external factors that influence their decision.

Internally, pricing is affected by elements within the company’s control — such as cost structure, marketing objectives, production capability, and desired profit margin. For example, if production costs are high, the selling price may need to be higher to maintain profitability.

Externally, pricing is influenced by factors outside the business — including market demand, customer perception, competitors’ prices, government regulations, and overall economic conditions. For instance, during economic downturns, consumers are more price-sensitive, so businesses might adjust prices to remain competitive.

A smart pricing decision balances both internal strengths and external realities — ensuring the price reflects value to customers while supporting the company’s financial goals.