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Pricing Decisions

Pricing

Pricing is one of the parts of the business’s marketing plan. It is the process whereby a business firm sets the price at which it sells its products and services. While setting prices, the firm takes into account the price at which it could acquire the goods, the manufacturing cost, the market place, competition, market condition, brand and quality of product. Its main motto is to get the highest possible price for the goods and services it sells whereas the consumer wishes to pay the least possible price for his purchases.

It is a fundamental aspect of financial modeling and is one of the four Ps of the marketing mix. Price is the only revenue generating element amongst the four Ps. All the other P’s (i.e. product, promotion and place) are a cost centers to the company. Pricing places a vital role in the field of marketing. It is important to both the seller and buyer in the market place.  Pricing is effective only when a business firm set the prices of its products and services by evaluating consumers’ willingness and his capacity of buying the product. Thus, pricing is used as a tactical decision in response to comparing market situation.

 Objectives of Pricing

The Pricing objectives provide the basis for formulating pricing policies, pricing strategies and setting actual prices of goods and services. While deciding on these objectives, the marketing manager consider the aspects of the overall financial, marketing and strategic objectives of the company, the objectives of company’s product or brand, consumer price elasticity and price points, etc. Thus, the overall goals of pricing give direction to the whole pricing process of an organization.  Some of the Pricing Objectives of the business firm are as follows:

  • Profit Maximization: This is the prime pricing strategy to use if a business firm is in a monopoly. In it, a firm’s aim is to maximize profit on total output rather than on each product item. The entire micro-economics is based upon the assumption that buyers and sellers take rational decisions. The rational behavior is defined as an attempt to maximize gains and minimize losses. In operative terms, it means that the basic objective of all individual firms is profit maximization. Here, the firm tries to set its price in a way that more current profits can be earned. Though, the firm cannot set its price beyond the limit. But, it concentrates on maximum profits. Thus, by understanding the profitability objectives, the firm can plan both the short and long-term pricing strategies to garner profit.

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