Price setting is a key strategy decision. Pricing decisions affects the number of sales and amount of money a company makes. There are many ways to set prices, the simplest approaches are demand-oriented and cost-oriented price setting. Demand-oriented price setting approaches consist of Marginal analysis, price sensitivity, value in use pricing, and reference prices. Cost-oriented setting approaches consist of markups, Average-cost pricing, types of cost, and break-even analysis. Some price objectives are as follows:
• Target Return
• Maximize profits
• Dollar or unit sales growth
• Growth in market share
Status quo oriented
• Meeting competition
• Nonprice competition
Dell believes that the appropriate price strategy for our new Client Information Management System (CIMS) would be profit oriented. Dell chose profit oriented based on the fact that a target return sets a specific level of profit that Dell gets back. For example, “Motorola, who is a large manufacturer, aims for 15 % return on investments. Safeway and other supermarket chains might get a 1% return on sales. A target return objective has administrative advantages in large companies. Performance can be compared against the target. Some companies eliminate divisions, or drop products that aren’t yielding the target rate of return” ( pg 459, CH 18). Profit maximize objective seeks to get as much profit as possible. To achieve Profit maximization doesn’t mean we have to raise our prices. If we sell things at too high a price, not many people will purchase the item, but if we sell it at a reasonable, lower price, more people will purchase the item, which will allow us to reach profit maximization.
Perreault, W. D., Cannon, J. P., & McCarthy, E. J. (2008). Ch 18, pg 459. Basic marketing: a marketing strategy planning approach (17th ed.). Boston: McGraw-Hill/Irwin.
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