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Pricing objectives by Ahmad Faraz

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Pricing objectives by Ahmad Faraz

  1. 1. 1 Ahmad Faraz 0304-7765351 afaraz.ns@gmail.com Rasool Pur Colony, Noor Shah, Sahiwal
  2. 2. A goal that guides a business in setting the cost of a product or service to potential consumers is called pricing objective. A pricing objective underlies the pricing process for a product, and it should reflect a company's marketing, financial, strategic and product goals, as well as consumer price expectations and the levels of available stock and production resources. Some examples of pricing objectives include maximizing short run profits, increasing sales volume, matching competitors' prices, or meeting target rates of return. Each pricing objective requires a different price-setting strategy in order to successfully achieve business goals. 2 Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  3. 3. 3 Profit-Oriented Pricing Objectives Sales-Oriented Pricing Objectives Status Quo Pricing Objectives Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  4. 4. 4 Profit-Oriented Pricing Objectives Profit Maximization Satisfactory Profits Target Return on Investment Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  5. 5. 5 Setting prices so that total revenue is as large as possible relative to total costs. Profit maximization does not mean profiteering. There is nothing wrong in this policy if practiced over the long run. As a matter of fact, many of the enterprises strive to maximize their profits. Maximization of profits should be on the total output and not on a single item. In such case, consumers do not get dissatisfied since a particular group is not called for paying a high price. While adopting this pricing objective, the marketers should attempt to project their image in the market through sales promotion techniques. The marketers should watch the reactions of the consumers. Profit maximization through price hikes should be sparingly used.
  6. 6.  Satisfactory profits represent a reasonable level of profits that is consistent with the level of risk an organization faces.  To satisfy customers is the prime objective of the entire range of marketing efforts. And, pricing is no exception. Company sets, adjusts, and readjusts its pricing to satisfy its target customers. In short, a company should design pricing in such a way that results into maximum consumer satisfaction. 6 Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  7. 7. 7 Net profit after taxes divided by total assets. ROI = Net Profit after taxes Total assets Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  8. 8.  Marketers should understand the position of their company and the returns expected when making adjustments in prices.  Return on investment is one way of considering profits in relation to the capital invested.  The purpose of the return on investment metric is to measure per period rates of return on dollars invested in an economic entity.  Return on investment is often compared to expected (or required) rates of return on investment. 8 Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  9. 9. 9 Market Share Sales Maximization Sales-Oriented Pricing Objectives Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  10. 10. 10 A company’s product sales as a percentage of total sales for that industry. A company may either have the objective of maintaining the present market share or increase its share depending upon its standing. Particularly, big business houses adopt such pricing that it enables them to retain their market share. If they raise their market share, they may draw the attention of the government and if they shed their share, they may lose revenues. Contrary to this, small business houses are found interested in raising their share in the market so as to reap the benefit of large-scale production. In few cases, firms may sell the products even at a lower cost to capture the market. However, such practice may lead to financial crisis. As a matter of fact, this is an objective to be adopted by new firms carefully. Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  11. 11.  Short-term objective to maximize sales.  Ignores profits, competition, and the marketing environment.  May be used to sell off excess inventory. 11 Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  12. 12.  Company’s objective is to increase sales volume. It sets its price in such a way that more and more sales can be achieved. It is assumed that sales growth has direct positive impact on the profits. So, pricing decisions are taken in way that sales volume can be raised. Setting price, altering in price, and modifying pricing policies are targeted to improve sales. 12 Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  13. 13. 13 Maintain existing prices Meet competition’s prices Status Quo Pricing Objectives Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  14. 14.  Frequent changes in the prices of product will harm the long-term interests of the companies. Hence, they aim at stabilization of prices. They do not make use of a short supply position to earn the maximum. During the periods of good business, they try to keep prices from raising and during the periods of depression, they keep prices from falling too low. Thus, they take a long term view in achieving price stability. 14 Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  15. 15.  In 1998, the ECB Governing Council formulated the quantitative definition of price stability: "Price stability is a year-on-year increase in the Harmonized Index of Consumer Prices (HICP) for the euro area of below 2%. Price stability must be maintained over a medium-term perspective."  In addition, in May 2003 the Governing Council also clarified that, in the chase of price stability, it aims to maintain inflation rates "below, but close to, 2% over the medium term". 15 Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  16. 16.  Price stability contributes to achieving high levels of economic activity and employment by  improving the transparency of the price mechanism. Under price stability people can recognize changes in relative prices (i.e. prices between different goods).  avoiding unproductive activities to hedge against the negative impact of inflation or deflation.  preventing an arbitrary redistribution of wealth and income as a result of unexpected inflation or deflation. 16 Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  17. 17.  What is 'Competitive Pricing'  Competitive pricing is setting the price of a product or service based on what the competition is charging. This pricing method is used more often by businesses selling similar products, since services can vary from business to business, while the attributes of a product remain similar. This type of pricing strategy is generally used once a price for a product or service has reached a level of equilibrium. This level of equilibrium occurs when a product has been on the market for a long time and there are many substitutes for the product. 17 Ahmad Faraz Rasool pur colony noor Shah, Sahiwal
  18. 18.  Businesses have three options when setting the price for a good or service:  set it below the competition,  at the competition  or above the competition. Above the competition pricing requires the business to create an environment that warrants the premium, such as generous payment terms or extra features. A business may set the price below the market and potentially take a loss if the business believes that the customer will purchase additional products from their business once the customer is exposed to the other offerings. 18 Ahmad Faraz Rasool pur colony noor Shah, Sahiwal

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