pricing considerations

7/31/2019 Pricing Considerations

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PRICING OBJECTIVES AND POLICIES

* Price is what a customer must give up to get the benefits offered by the

rest of the Firm’s marketing mix

* It plays a direct role in shaping customer value

* Pricing decisions affect both the number of sales a firm makes and how

much money it earns

* It is one of the four major strategy decision variables a marketing

manager controls

• Guided by the company’s objectives, marketing managers must develop a

set of pricing objectives and policies

• They must spell out what price situations the firm will face and how it is

going to handle them




• The something can be a physical product in various stages of completion

1. With or without the supporting services

2. With or without quality guarantees

3. It could even be a pure service : dry cleaning, Doctor’s / Lawyer'sadvice, insurance on a car

• The nature and extent of this something determines the amount of money exchanged

• Some customers pay he list price

• Others get huge discounts or allowances because that something is not

provided




• Pricing policies must explain

1. How flexible prices will be

2. At what level they should be set over the product life cycle

3. To whom and when discounts and allowances will be given

4. How transportation costs will be handled

5. How taxes, duties and levies will be treated.

• It is not easy to define price in real-life situations because price reflectsmany dimensions

• People who do not realize this can make big mistakes

• When a seller quotes a price, it is related to some assortment of goodsand services

• So PRICE is the amount of money that is charged for “something” of value




Target Return

Profit Oriented

maximize Profits

Rupee or Unit Sales

GrowthPricing Objectives Sales Oriented

Growth in Market

Share

Meeting Competition

Status Quo

Oriented

Non price Competition




Profit Oriented ObjectivesTarget return Objective

- Sets a specific level of profit as an objective

- Often this amount is stated as a percentage of sales or of

capital investment.

- Large manufacturer like MOTOROLLA may aim for 15%

return on investment.- Supermarket chains may aim for 1% return on

investment

- Target return objective has administrative advantages in

large organizations.

- Performance can be compared against target- Some companies eliminate divisions or drop products that

are not yielding target rate of return

- General motors sold its small appliances division and TATA STEEL

sold its Cement division




Profit Oriented Objectives

Profit maximization objective

- Seeks to get as much profit as possible

- It can be stated as a desire to earn a rapid return on

investment

- Pricing to achieve profit maximization doesn’t always lead

to high prices.

- Low prices may expand the size of the market and result

in greater sales and profit

- Example: When prices of Cell Phones were very high and

when prices were lowered.




Sales Oriented Objectives

Rupee or Unit Sales Growth Objective- Seeks some level of unit sales, rupee sales or share of hemarket

- Some managers are more concerned about sales growth

than profits- They think that sales growth always leads to more profits- This thinking often leads to problems when a firm’s costsare growing faster than sales

- Some major Companies have had declining profits inspite of growth in sales- Many Companies kept lowering prices to increase marketshare but never earned any profits

- Business managers however are now paying more

attention to profits and not just sales




Sales Oriented Objectives

Market share growth Objective

- Many firms seek to gain a specified share (percent) of a

market

- If a firm has a large market share, it may have bettereconomies of scale than its competitors

- In addition it’s usually easier to measure a firms market

share than to determine if profits are being maximized

- A company with a longer-run view may aim for increased

market share when market is growing

- The hope is that future volume will justify sacrificing

some profit in the short run




Status quo pricing objectives

- Adopted by those managers who are satisfied with their current

market share and profits

- Managers may say that they want to stabilize prices, or meet

competition, or even avoid competition

- This thinking is most common when the market is not growing- A status quo pricing objective may be part of an aggressive overall

marketing strategy focusing on nonprice competition

- Aggressive action on one or more of the P’s other than price

- Fast food chains like McDonald’s experienced very profitable growthby sticking to non price competition for many years

pricing considerations

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