Pricing objectives

Pricing objective:

It refers to a goal that guides a business in setting the cost of a product or service to potential consumers. A pricing objective underlies the pricing process for a product, and it should reflect a company's marketing, financial, strategic and product goals, as well as consumer price expectations and the levels of available stock and production resources.

The pricing objectives can be

·         Profit oriented

·         Sales oriented

·         Status-quo oriented

·         Quality oriented

• Profit oriented pricing objective:  

  They focus on profits. The pricing objective can be target return or satisfactory profit.

·   Target return: the pricing objective is to achieve a specified return on sales or investment. This is the desired profit. For example 5% on sales or 10% on net worth.

·  Satisfactory profit: the pricing objective is to get a satisfactory profit. It is reasonable for the organization. This may be similar to bank interest or profit in similar ventures.

• Sales oriented pricing objectives

  They focus on sales. The pricing objective can be to gain sales volume or market share.

·      Sales volume: the pricing objective is to generate higher sales volume, for example 20% increase annually. Low price strategy is followed to stimulate demand.

·         Market share: the objective is to maintain or increase market share in competitive markets. Low price and high promotion strategies are used to increase market share

• Status quo oriented pricing objectives

They focus on maintaining the current market position. The pricing objective can be

·         Price stability: the pricing objective is to stabilize current prices

·         Meet competition: the pricing objective is to meet competition

·         Survival: the pricing objective is to survive in the market. The operations are kept going at break-even point. Intense competition, decrease in demand and change in customer preferences necessitate such objective.

Quality oriented pricing objectives:

They focus on product quality. The pricing objectives can be

·         Quality leadership: the pricing objective is product quality leadership. This is generally used for prestige products like Rolex, BMW. Market skimming is done by setting higher prices. High image of the organization is needed for this objective to be meaningful.

·         Quality imitation: the pricing objective is to imitate the high quality products. Lower prices are set to attract price sensitive customers.