There always exists a motive behind pricing a product or service, may it be revenue, survival, or any other competitive advantage. Following are some of the pricing objectives:
- Profit Maximisation
- Price Stability
- Facing Competition
- Achieving a Target-Return
- Capturing the Market
- Firm’s Wellbeing in the Long-run
- Profit Margin of Middlemen
- Mobilisation of Resources
- Survival
- Product-Quality Leadership
Profit Maximisation: The basic aim of a pricing decision is to increase the profits of the firm. The pricing policy thus must be made in a way that it can help the firm achieve to maximum profits.
Price Stability: It must be ensured that prices remain as stable as possible. When a pricing policy is stable, it gains customer confidence and enhances the reputation of the company. This can be done by taking into account long-term and short-term elements.
Facing Competition: Another objective of price decision is to handle the market competition effectively. The competitive situation must be kept in mind while finalising the prices of products and services. At times, management prices its product very low as compared to its competitors in order to discourage all the possibilities of competition.
Achieving a Target-Return: The reputed and well set-up firms aim to set a specific rate of return on investlnent (either for the product quality or for the company’s/brand’s name). They calculate the product’s price in such a manner so as to achieve the desired rate of return on investment. Different products may have different target returns, but they must all be associated with one final targeted late of return.
Capturing the Market: Capturing the market is also an important objective of pricing. When a big organisation introduces its product in the market, it fixes the price of its product lower than its competitors. This is done keeping in mind the competitive Structure of the market and With the aim to capture a big market share.
Firm’s Wellbeing in the Long-run: The prime objective Of certain organisations is to set the price Of their product in a manner that best suits the organisation in the long-run. While doing this, the economic situation and market conditions must be kept in mind.
Profit Margin of Middlemen: The product must be priced with the aim of pmviding the middlemen a reasonable return on the sale of a product. If this does not happen, they will not take relevant interest in facilitating the product’s sales.
Mobilisation of Resources: Another objective relating to pricing is the mobilisation of appropriate resources for the growth and development Of the organisation. Therefore, organisations aim to price its products in such a manner that it can acquire enough resources.
Survival: Survival Strategy is preferred by firms dealing with it’s over capacity, extreme and fresh competition or varying consumer behaviour. It is also an important objective of pricing in certain organisations. It helps companies sail through rough waters and is hence a short-term objective. The company prefers this strategy until the price is more than variable costs and some of the fixed costs are retrieved. However, the company must strive to add value in the long-term.
Product-Quality Leadership: To achieve product-quality leadership is also one Of the important pricing objectives. Finns producing products that are better in quality than the competitor frequently try to become the product-quality leaders in the market. They price their products higher, but tv to convince the customers that due to the enhanced quality, reliability, product experience and other such benefits, the prices are worth the product values. They convince the price sensitive customers by assuring them that they will be benefitted in the long-run. The point Of importance here is that rather than allowing cost to decide the price, it is better to use price as a strategic tool. If an organisation has a product that is better than the competitor’ s, it should make it known in the market and charge higher price for it. Then, it will be able to earn more profits.