The firm may use price to achieve a specific objective, whether a targeted rate of return on profit, a targeted market share or some other specific goal. Important objectives of Pricing Pricing strategy begins with the determination of objectives. Additionally, some customers will value the ability to purchase a group of complementary products. This pricing strategy is similar to the multiple pricing strategy. In other market situations like oligopoly and monopolistic competition, the individual producers take the prices of the rival products in determining their price.
The sound pricing can help the company introduce a new product successfully. Smith, managing principal of Chicago-based strategic pricing firm Wiglaf Pricing. It is a fundamental pricing objective. Target Return on Investment: Most companies want to earn reasonable rate of return on investment. In times of overcapacity or market decline, strategists can decrease prices to an extent which could still cover up the costs and let the business up and running.
The company stays in the business so long as the prices cover variable costs and some fixed costs. Real differentiation comes in product development; Perceived differentiation in marketing and sales. If other firms also decide to cut down their prices, a price war might ensue that will likely not benefit anyone except the consumer. This kind of price management by catastrophe discourages the kind of systematic analysis needed for clear cut pricing policies. Cash flow is sometimes more important that an absolute profit. A customer purchasing just one item will pay more for the item than what you would typically charge if you were not using a multiple pricing strategy. They charge more, but convince the customer that it's worth it because of the superior product experience, reliability, or other quality related benefits.
Some of the most common pricing strategies used by an organization include differential pricing, promotional pricing, product line pricing, and psychological pricing. Although market penetration uses low prices to attract attention, skimming uses a reputation that has already been built to charge high prices from early adopters. An organization, while setting the prices of its products, needs to ensure that prices must cover costs incurred for producing products and profit margins. It works on the principle of keeping the prices low enough so that customers prefer you before going to anyone else. Increasing the market share is a sure way to lower costs. Each pricing objective requires a different price-setting in to successfully business goals.
So, companies new to exporting cannot absorb such losses. This objective is aimed at making as much money as possible. This pricing strategy can be useful when differentiating your product from other products is difficult. Microsoft Office is sold as a bundle of computer software, including Word, Excel, and PowerPoint. And, pricing is no exception. Yet the fact remains that the prices are very close for a somewhat similar product. Pricing objectives reflect the overall goals a firm wants to accomplish through pricing.
Advertisement and sales promotion also contribute very much in increasing the demand for advertised products. Do sales increase when companies bundle their offerings? The broadest of them is survival. Product pricing decision should be lower than the cost. The farmer does realize that, for now, he has a monopoly on certified organic produce, but he needs to continue to monitor his competition. In sales maximization, management sets an acceptable level of profitability and then tries to maximize sales. But a firm cannot afford to charge fewer prices over a long period of time. In real life, firms want to prevent the entry of rivals.
If a firm is selling its product in a highly competitive market, it will have little scope for price discretion. In international marketing, pricing objectives may vary, depending on a product life cycle stage and the country specific competitive situation. The management has to assume some desired price-volume relationship for determining costs. In a particular situation, the behaviour of one individual may not be the same as that of the other. Factors Involved in Pricing Policy: The pricing of the products involves consideration of the following factors: i Cost Data.
Setting prices for your products or services doesn't simply come down to a simple calculation. And you have to go offensively. This is the transfer price decision. The goal of using a loss leader pricing strategy is to lure customers to your business with a low price on one product with the expectation that the customer will purchase other products with larger profit margins. Competitors without other revenue streams to offset lower prices will likely not appreciate using this objective for products in direct competition with one another. With this strategy it is important that the extra fee for the option s is reasonable; otherwise, you may lose business to a competitor with a more appropriate pricing structure for the extra services offered.
Additionally, different pricing strategies can be used at different times to fit with changes in marketing strategies, market conditions, and product life cycles. A firm has to decide how to price its goods in order to achieve its goal of making a profit. Company sets its pricing policies and strategies in a way that sales revenue ultimately yields average return on total investment. Therefore, demand for product is very sensitive to price changes. We can never set a price blindly on this hope to earn profit. Some of pricing objectives include maximizing profits, increasing , matching competitors' prices, encouraging smaller competitors to industries, or target rates of. Manufacturers of durable goods always set a high price, even though sales are affected.