Pricing of products begins with the setting of objectives.The basis for formulating pricing strategies and policies is provided by pricing objectives.They should try to achieve the firm’s goals.
Pricing objectives of individual firms in an industry are usually different from each other.
A different pricing strategy is required to achieve the goals of the business.Different market segments have different pricing strategies.Before determining the pricing objectives, the firm must understand the market and marketing mix of the product.
The necessary standards for measuring the performance for effective monitoring, coordinating, and planning are provided by pricing objectives.
Most cases survival is the most important objective.Firms are willing to accept short term losses.
A low pricing strategy is used to increase sales volume.Only when the firm faces a survival crisis can survival pricing objective be used.It shifts to other objectives once the firm’s position improves.
Long term pricing objectives of a firm include stabilizing prices and profits.Firms image in the market is affected by fluctuations in prices.In an oligopoly market, one seller acts as the price leader and others follow him.
The price wars are avoided by this.The goal is to increase competition and increase market share.
Changes in pricing can affect the company’s image, and stability in price has a good impression on buyers.
Sales growth is assumed to lead to an increase in the company’s profits.Pricing policies need to be set to improve the sales of the company.
Market share is a measure of consumer preference for a product.A percentage of consumers is captured by a company.Pricing needs to be done in a way that gets the target market share.
The firm can either increase its market share or maintain it.The firm might lower the price in order to get a bigger share of the market.
Market position is linked to price flexibility and profits.The firm’s market share objective must be compatible with other pricing objectives to achieve its goals.
Product quality, packaging, brand name, etc., are some of the things that people think about when they think of a company.The pricing policy of the company has an influence on the image.
If a company goes for low-quality and low priced products, it may lose customers.
If a company image is established, it can price its products.A new product line may be introduced at higher or lower prices.Even if a segment has not previously purchased its products, it can easily target different market segments.
The firm should focus on maximizing profits on total output.A long term objective is profit maximization.The firm may be willing to sacrifice short-run profits to maximize profits in the long run.
The company’s performance is affected by competition in the market.One step ahead of their competitors is what every company tries to do.Pricing can be used to eliminate a competition.
Meeting the competition means keeping the same prices as the competitors.Companies modify their pricing policy to respond to their competitors.
The firm can price their products as low as possible to discourage competitors from entering the market.
Some buyers think high price is related to high quality.The pricing of the product must be done to create an image in the minds of customers that the company’s product is superior to the offering by competitors.
The marketing efforts are to satisfy customers.The customer’s purchasing decision is influenced by pricing.According to the buying behavior of their target customers, companies set and modify their pricing policies and strategies.Pricing strategies and policies must be designed to maximize customer satisfaction.
Pricing for profit is logical.The rate of return on investment is determined by the prices of the products.
An example would be a company that expects to sell 10000 units in a year.The total investment is 10 lakh dollars, and the unit cost is $80.The company will calculate the price if theROI is 20% before taxes.
Add 20% to the total cost of 10,000 units and you have a return on investment of $2,00,000.
The objective leads to cost-plus pricing, which is the cost of production plus margin of profit.Target return on investment pricing is usually adopted by firms who are industry leaders because they can set the standards to be followed by the follower firms.It is used by companies that sell in an established market.
The objective is to charge higher prices from early-adopters.Skimming pricing strategy is used when the product is new and advanced to charge higher rates from the customers who are willing to pay.
When there is no close substitute and market conditions become competitive to target price-sensitive customers, this pricing strategy is used.When Apple and Sony launch new products, they charge higher rates and reduce the price as time goes on.
The market penetration pricing objective is different from the skimming pricing strategy.The pricing objective is to set a low initial price of the product to increase sales and capture a larger market share.To attract price-sensitive customers, this pricing strategy is used.When production is increased, the cost of production and distribution is reduced.
If the company positioned itself in the consumer’s mind, it would be possible to maximize satisfaction and lifetime value.