The factors affecting pricing decisions can be classified into two categories as under:

Internal Factors: These are controllable factors that exist within the company’s environment. They are:

1. Business Objectives: The pricing decision should always be in accordance with the business objectives like growth an expansion and customer satisfaction. 

2. Cost of the product: This is the most important factor that determines the pricing decision. The price = Cost + profit. Thus the price for the product or service should cover the entire cost to the manufacturer as well as reasonable profits. 

3. Quality of the product: High-quality products give rise to higher costs and demands for higher prices. But low-quality products give rise to low cost and reduces the price.

4. Marketing Mix: The other elements of the marketing mix also influence the pricing decisions. If the other elements ail well co-ordinate, even a high-priced product can be sold easily. 

5. Product differentiation: If a business concern differentiates its products from that of the competitors in terms of style, design, color, package, etc., it can change its prices easily than a firm that is too rigid in its product.

External Factors: These are the uncontrollable factors that exist outside the company’s environment. They are:

1. Elasticity of demand: A product that has inelastic demand, higher price may be fixed for that product. But if the demand for the product is elastic the price of the product must be kept flexible.

2. Pricing policy of competitors: The number of competitors and pricing strategies also will have a bearing on the pricing decisions of a concern.

3. Distribution channels: A lengthy distribution channel demands for higher price. On the other hand, a shorter distribution channel reduces the price of the product. 

4. Government policy: The government policies regarding certain products influence the pricing decision of the concern. Accordingly, price needs to be adjusted.