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Home›Business›What Are Pricing Objectives?

What Are Pricing Objectives?

By Danny Messinger
February 6, 2017
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Pricing objectives guide the process of pricing products. The first step in pricing products or brands is to determine what your objectives are as a business or company. What does your business want to achieve?

Among market mix elements, pricing stands out as the most important. This is because it produces returns that support all the other components. Other market mix elements include promotion, place, and product.

Even though supply and demand are principal in guiding pricing processes and decisions, other objectives play key roles in dictating the pricing of business brands and products. These objectives are associated with profitability, competition, sales volume and the market shares.

Objectives of pricing can be categorized into the following groups:

Sales-related Objectives

For businesses to increase their sales volume, they set their product prices in a manner that more sales can be attained. Sales growth can have a positive effect on profits, thus pricing resolutions are taken in a way that increases sales volume. As such, change of prices and setting pricing policies is done to increase sales.

Alternatively, a business can modify its pricing policies to attain and maintain a particular market share.

Also, pricing is considered as one of the most effective tools to increasing the company’s market share. Subsequently, it is done in a manner that helps businesses to attain their targets or increase their market shares.

Pricing for Competition Purposes

Competition is one factor that has a significant influence on market performance. Businesses often react to their competitors by setting appropriate business policies. As such, companies adjust to best pricing strategies to respond to competition strongly.

Also, companies adapt better pricing objectives to keep away entry of new competitors to the market. For example, businesses set low prices to their brands to minimize profit desirability of brands. In fact, some businesses opt to sell their brands at a loss to keep away new competitors.

In contrast to setting prices to keep away new competitors, certain pricing practices can be adopted to kick out some competitors out of the market. Companies can forgo the immediate profits – by lowering and keeping prices very low – to maximize future profits by charging higher prices once they have removed weak companies out of the market.

Pricing for Customer Related Objectives

In any market decision, customers are the fulcrum. To win customer confidence businesses and enterprises adopt appropriate pricing strategies. They do this by charge reasonable and affordable prices for their brands. By charging reasonable prices make customers fell that they are not being conned.

Businesses also adopt appropriate pricing policies to ensure satisfaction of their customers. In order to achieve this, businesses set and regularly readjust to pricing that gives their clients satisfaction.

Pricing for Market Penetration Purposes

For a business to penetrate and dominate a market, its management must adopt strategies that attract the maximum number of customers. To achieve such a milestone, companies and businesses look at adopting best pricing policies. For instance, they charge lower prices to attract price-sensitive buyers into buying their products.

For Survival Purposes

A business can opt to adopt low pricing strategies for their products to ensure it survives in the market. By doing this, sales will remain sufficient to keep the business running. Businesses adopt survival based pricing policies for short-term losses for the sake of long-term sustainability.

To Maintain Image and Reputation in the Market

Effective pricing strategies have a positive effect on business and company’s image and reputation among customers. By charging affordable prices and keeping them fixed the business will have a better reputation in the mind of their targeted consumers as opposed to oscillating the prices.

For Pricing Enforcement Purposes

Pricing enforcement is whereby companies and their distributors agree that distributors resell their brands at specific prices. They may sell above pricing floor or below pricing ceiling. To ensure best pricing enforcement practices businesses and manufacturers must adopt appropriate pricing objectives. Pricing enforcement deters resellers from stiffly competing on prices.

For Price Stability

Finally, the objective of pricing is aimed at stabilizing market prices. Businesses set and implement pricing strategies that will ensure the stability of product prices in the market. Best pricing policies do away with the frequent and seasonal fluctuation of prices. Constant fluctuations of prices affect the reputation of a business or company.

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