Posted in Marketing and Strategy Terms, Total Reads: 402
Definition: Pricing Objective
Price forms an important constituent of the marketing mix and is generally governed by the organizations pricing objectives, which is reflective of the marketing, financial, product and strategic goals, along with the consumer price expectations, the stock at hand, the production capacity and the associated price elasticity.
Pricing objectives can be partitioned into 5 major heads:
Prices are considerably flexible. The company might lower the prices in order to increase sales by taking a hit on profitability or undergoing losses to keep the business going. It is utilised generally when a company is willing to accept short term losses for the sake of long term viability.
Price influences the profit made by the company as the price should be such that cost of production is covered while the price also determines the number of units of a good or service sold. Herein there are 2 major categories
a. Target Return: The price point is decided based on meeting a certain targeted return which might be time bound
b. Maximize profit: The price objective in order to maximize profit can be for the long term as well for the short term. Short term maximized profit is possible in case of lack of competition wherein the company charges a very high price since it’s the sole company. Whereas in order to maximize long term profit he needs to price in order to avoid new entrants in the industry so that it remains the sole provider.
Maximising sales is equivalent to generating as much revenue as possible, irrespective of the profit margins. This might be opted by companies which are in a financial conundrum and need quick cash to pay off their debts. It might be achieved by getting rid of the inventory to have more liquidity. Because of its short term vision and less focus on profitability it is generally to meet short term objectives.
d) Market share:
Some firms set prices in order to capture a large share of the sales in their industry which is not reflective of higher profits. Many companies believe it is imperative to have a major market share for their survival in the industry. It has been widely witnessed in cell phone industry wherein lava, micromax, intel, and many players fight for a majority market share in the low cost cell phone market in India
e) Status Quo: There are times when the company just wants to maintain the status quo and prices its product similar to its competitors. Companies following this keep a close eye on the prices of the competitors. It has generally been observed in the airline industry wherein the prices among competitors of low cost airlines are highly comparable separated by a few rupees.