Pricing Objectives, Strategies & Promotional Mix of a Company

Topics: Pricing, Marketing, Profit maximization Pages: 20 (6048 words) Published: November 14, 2010

Pricing is one of the major components of the marketing plan, which is a component of a full business plan. Assigning product prices is a strategic activity. The price you assign will impact how consumers view your product and whether they will purchase it. Price also helps differentiate your product from those of your competitors. However, the price you assign must be in line with your other marketing strategies and the product attributes. Whether or not you develop a formal marketing plan, performing some of the research necessary for a marketing plan prior to determining the pricing strategies implement is important. The knowledge gained from the research will help in assigning appropriate prices to your products or services—prices that reflect the quality and attributes your product offers the consumer. Your marketing goals and knowledge of the industry, your competition, and the market are essential.

Pricing Objectives

Many pricing objectives are available for careful consideration. The one you select will guide your choice of pricing strategy. You’ll need to have a firm understanding of product attributes and the market to decide which pricing objective to employ. Your choice of an objective does not tie you to it for all time. As business and market conditions change, adjusting your pricing objective may be necessary or appropriate. How do you choose a pricing objective? Pricing objectives are selected with the business and financial goals in mind. Elements of your business plan can guide your choices of a pricing objective and strategies. Consider your business’s mission statement and plans for the future. If one of your overall business goals is to become a leader in terms of the market share that your product has, then you’ll want to consider the quantity maximization pricing objective as opposed to the survival pricing objective. If your business mission is to be a leader in your industry, you may want to consider a quality leadership pricing objective. On the other hand, profit margin maximization may be the most appropriate pricing objective if your business plan calls for growth in production in the near future since you will need funding for facilities and labor. Some objectives, such as partial cost recovery, survival, and status quo, will be used when market conditions are poor or unstable, when first entering a market, or when the business is experiencing hard times (for example, bankruptcy or restructuring).

Brief definitions of the pricing objectives are as follows.

Partial cost recovery — a company that has sources of income other than from the sale of products may decide to implement this pricing objective, which has the benefit of providing customers with a quality product at a cost lower than expected. Competitors without other revenue streams to offset lower prices will likely not appreciate using this objective for products in direct competition with one another. Therefore, this pricing objective is best reserved for special situations or products.

Profit margin maximization — seeks to maximize the per-unit profit margin of a product. This objective is typically applied when the total number of units sold is expected to be low.

Profit maximization — seeks to garner the greatest dollar amount in profits. This objective is not necessarily tied to the objective of profit margin maximization.

Revenue maximization — seeks to maximize revenue from the sale of products without regard to profit. This objective can be useful when introducing a new product into the market with the goals of growing market share and establishing long-term customer base.

Quality leadership — used to signal product quality to the consumer by placing prices on products that convey their quality.

Quantity maximization — seeks to maximize the number of items sold. This objective may...
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