Page 189 - DMGT408DMGT203_Marketing Management

Marketing Management/Essentials of Marketing

Notes prefer a brand because of its features, quality, or service, they are less likely to shift to competing
brands and sales are less dependent on price. Despite this, a company cannot completely ignore
prices of competitive products. Price is an important marketing mix element even when market
environment and product nature favours non-price competition.

Self Assessment

State whether the following statements are true or false:
1. Price represents the value that is exchanged in a marketing transaction.
2. Pricing should be seen as an isolated component of a company’s marketing decision-making.
3. A company can highlight the product quality and user status by keeping the price high.

4. Too frequent price reductions sometimes lead to price wars that strengthen the marker
position of the companies.

8.2 Pricing Objectives

Pricing objectives focus on what a company wants to achieve through establishing prices. These
objectives should be clear, concise, and understood by all involved in pricing decisions. Pricing
objectives affect decisions in various other functional areas such as finance and production etc.
and must be in accordance to company’s overall mission and objectives. There is diversity of
objectives and generally companies have multiple pricing objectives. Some of these objectives
may be short-term and others long-term. Besides, to respond to changing market conditions,
companies generally alter pricing objectives as and when desirable. Most companies do not lose
sight of the fact that price is a strategic tool and do not simply let costs or the market determine
the prices. Some major types of pricing objectives are shown in Table 8.1.
Survival: This is the broadest and most fundamental pricing objective of any company because
staying in business is important under difficult conditions such as overcapacity, intense cut-
throat competition, and changing consumer’s wants and preferences. Most firms will tolerate
difficulties but only as long as prices cover variable costs and even a small part of fixed costs,
they can stay in business and device methods of adding value.
Profit: Many companies set profit maximisation as their pricing objective. Profit maximisation
is likely to be more beneficial over the long-run. The firm, however, may have to accept modest
profits or sometimes even losses over the short-term. The major problem with maximisation
objective is that it is difficult to measure whether profit maximisation has been accomplished. It
is almost impossible to establish what could be the maximum possible profit. Because of this
difficulty, maximisation objective is rarely set and companies settle down to a profit figure or
some percentage change over previous period that its decision- makers view as optimum profit.

Table 8.1: Pricing Objectives and Typical Company Actions

Objectives Typical Actions
Survival Price adjustment to enable company to increase sales volume to meet company
expenses.
Profit Determine price and cost levels that permit company to realise maximum profits.
Return on Determine price levels that allow company to yield targeted Return on
Investment Investment.
Market Share Adjust prices to maintain or increase sales volume relative to competitors.
Product Quality Company sets prices to recover R&D expenditures and high product quality.
Establish high-quality image.

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