Session 20

Pricing Objectives
 Questions involved in pricing
Pricing involves asking questions like:
► How much to charge for a product or service?
► What are the pricing objectives?
► Do we use profit maximization pricing?
► How to set the price?
(cost-plus pricing, value-based pricing, rate of return pricing, or
competitor indexing)
► Should there be a single price or multiple pricing?
► Should prices change in various geographical areas, referred to as
zone pricing?
►Should there be quantity discounts?
►What prices are competitors charging?
►Do you use a price skimming strategy or a penetration pricing
strategy?
►What image do you want the price to convey?
►Do you use psychological pricing?
►How important are customer price sensitivity (e.g. "
sticker shock") and elasticity issues?
►Can real-time pricing be used?
►Is price discrimination or yield management appropriate?
►Are there legal restrictions on retail price maintenance, price
collusion, or price discrimination?
►Do price points already exist for the product category
Pricing Objectives:
►Profit Maximization in the Short term.
►Profit Optimization in the long term.
►A minimum return on Investment.
►A minimum return on sales turnover.
►Achieving a particular sales volume.
►Achieving particular market share.
►Deeper penetration of the market.
►Entering new markets.
►Target profit on the entire product line, irrespective of profit
level in individual products.
►Keeping competition out, or keeping it under check.
►Keeping parity with competition.
►Fast turnaround and early cash recovery.
►Stabilizing prices and margins in the market.
►Providing the commodities at prices affordable by weaker
sections.
►Providing the commodities/services at prices that will
stimulate economic development.
Firms use Pricing for objectives:
►Asian Paints pricing to protect market share.
►British Airways pricing to Enhance Profitability.
►LG shifts its pricing objectives to profitability from
volume/Market share.
Factors influencing Pricing

Internal Factors:
►Corporate and marketing objectives of the firm.
►The image sought by the firm through pricing.
►The characteristics of the product.
►Price elasticity of demand of the product.
►The stage of the product in its life cycle.
►Use pattern and turnaround rate of the product.
►Costs of manufacturing and marketing.
►Extent of distinctiveness of the product and extent of
differentiation practiced.
►Other elements of the marketing mix of the firm and their
interaction with pricing.
►Composition of the product line of the firm.
External Factors:
►Market characteristics (relate to demand, customer and competition)
►Buyer behaviour in respect of the product.
►Bargaining power of major customers.
►Bargaining power of major suppliers.
►Competitor’s pricing policy.
►Government controls/regulation on pricing
►Societal considerations