Pricing

Satisfactory Essays
HND Marketing Principles 1301
BA (Hons) International Management
Activity 6- Pricing

1. Give an example of each major type of pricing objective: profit-oriented pricing, sales-oriented pricing and status quo pricing.

Lamb/Hair/McDaniel (2012) mention that establishing realistic and measurable pricing objectives is a serious part of any firm’s marketing policy. Pricing objectives are usually categorized into three categories: profit oriented, sales oriented and status quo. In consistent with Lamb/Hair/McDaniel (2012) profit oriented pricing is based on profit maximization, reasonable level of profit or a target return on investment (ROI). The objective of profit maximization is to produce as much as income as achievable in relative to cost. Frequently, a more applied approach than profit maximization is setting prices to create profits that will fulfill management and stakeholders. The most common profit oriented approach is pricing for an exact return on investment relative to a firm’s properties. According to Lamb/Hair/McDaniel (2012) the second type of pricing objective is sales oriented and it emphases on either preserving a fraction share of the market or increasing dollar or unit sales; the third type of pricing objective purposes to maintain the status quo by identical participants’ price.

Reference:
Lamb, Hair, McDaniel (2012) “MKTG 5th edition”, ch.19, p.302- 305

2. Why is it important for managers to understand the concept of break-even points? Are there any drawbacks?

According to Adam Gordon (2011) “we don't make a profit until we cover all the variable costs incurred”; the point at which this is reached is known as the "breakeven point". Gordon (2011) mentions that more we sell after this point is reached more profit is made as well as the inferior the gross profit margin the smoother the transactions line on existing graph and more you have to sell before you break even. The static costs increase and there are no other changes

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