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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

PRICING OBJECTIVES AND POLICIES
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The something can be a physical product in various stages of completion With or without the supporting services With or without quality guarantees It could even be a pure service : dry cleaning, Doctor’s / Lawyer's advice, 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

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PRICING OBJECTIVES AND POLICIES
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Pricing policies must explain How flexible prices will be At what level they should be set over the product life cycle To whom and when discounts and allowances will be given How transportation costs will be handled How taxes, duties and levies will be treated.

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It is not easy to define price in real-life situations because price reflects many dimensions People who do not realize this can make big mistakes When a seller quotes a price, it is related to some assortment of goods and services So PRICE is the amount of money that is charged for “something” of value

PRICING OBJECTIVES AND POLICIES
Target Return Profit Oriented maximize Profits Rupee or Unit Sales Growth Pricing Objectives Sales Oriented Growth in Market Share Meeting Competition Status Quo Oriented Non price Competition

PRICING OBJECTIVES AND POLICIES
Profit Oriented Objectives
Target 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

PRICING OBJECTIVES AND POLICIES
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.

PRICING OBJECTIVES AND POLICIES
Sales Oriented Objectives Rupee or Unit Sales Growth Objective - Seeks some level of unit sales, rupee sales or share of he market - 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 costs are growing faster than sales - Some major Companies have had declining profits in spite of growth in sales - Many Companies kept lowering prices to increase market share but never earned any profits - Business managers however are now paying more attention to profits and not just sales

PRICING OBJECTIVES AND POLICIES
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 better economies 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

PRICING OBJECTIVES AND POLICIES
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 growth by sticking to non price competition for many years