When setting prices, the company must consider its external pricing environment. Describe three components of the pricing environment and how they affect businesses

What will be an ideal response?

Economic conditions affect both the costs of producing a product and consumer perceptions of the product's price and value. The business cycle, inflation, economic growth, and consumer confidence all influence the type of pricing strategy that will succeed. The competition is another major influence in the pricing environment. Depending on the type of industry, a company may charge a similar price as its competitors or set prices on the basis of its own costs. Consumer trends can also greatly affect prices. As demographics change, consumers' tastes change, affecting their purchasing habits. Change in government regulation is an environmental factor that can change a company's production costs or directly address how an industry sets prices.