Discerning customer demand is a critically important and continuous process. Market research is needed. While quality is important management must ensure that the product is not priced out of the market. Actions of Competitors Competitors' actions may force a business to lower its price to be competitive, this is particularly likely when a competitor is launching a new product and is seeking a share of the market.
Lower prices are usually unsustainable in the long run.
The role of costs in price setting depends almost entirely on market forces. Farmers must meet the market price and produce at a price below the market price. In most industries, both market forces and cost considerations heavily influence prices. Management cannot set prices blindly without keeping an eye on the market. However costs must be covered in the long run.