Lesson 10.

1
Pricing Objectives

Pricing objectives are the initial

goals and guiding principles that
the company establishes to direct
how it prices a good or service.
Once determined, the goal
establishes the course for the
business, i.e., the direction that the
business pursues.

The business can better match

pricing with its objectives by using
price targets. Customers can
determine the worth of your items
and work by looking at how much
the business charge them. It may
also play a significant role in the
The following are some of the pricing
objectives:
1. PROFIT
 All commercials enterprises need to generate long-term profits. Long-term success
allows many organizations to appease their most essential stakeholders, the
stockholders. Stock prices will drop if profits are lower than anticipated or
nonexistent, which could be bad for the business.

2. SURVIVAL
 Any company’s primary pricing goal is to determine an optional price that will enable
the product or service to remain in demand. A firm must set a price that covers all fixed
and variable costs incurred without including a profit margin to avoid being forced out
to the market due to fierce competition, a mature market, and changes in client tastes
and preferences, among others.
 Once a company gains a foothold in the market, it should prioritize long-term growth
over short-term survival. New firms entering the market adopt this style of pricing
objective.

3. MAINTAINING PRODUCT QUALITY

 Many businesses base the cost of their products and services on how well clients
perceive their quality . The luxury goods typically provide consumers an impression
of great quality, taste, and status for which they are willing to pay high costs.

2
4. INCREASING MARKET SHARE
 In an effort to gain a larger portion of the market, several businesses set low pricing
for their products. The goal of maintaining the low pricing is to promote sales. This
method of maintaining low price is also known as market penetration pricing. Higher
sales volumes results in cheaper production costs and longer-term increases in
profits. Where there is fierce rivalry and price sensitive clients, this pricing strategy is
typically adopted.

5. MAXIMIZING SALES AND PROFITS

 Profit demand sales, just as a company’s long-term survival depends on it. The
responsibility of marketing is tied in managing demand. Many businesses attempt to
maximize their present earnings. Pricing is determined by the level of customer
demand for the goods and the alternatives that can meet that need. The price
charged will increase as demands rises. The finest examples that can be used here is
the seasonal changes in supply and demand for products and services.

6. CHANGING THE BRAND IMAGE

 Pricing significantly affects how customers view a company. Prices should ideally be
higher to convey status and luxury and lower to convey value. However, general
opinion does not always turn out the way businesses hope.
 It is critical to have a long term strategy if brand equity is the primary focus of the
pricing objectives. Although some pricing strategies can change, consistency is
important. Pricing that emphasizes that brand must be appealing to the target
market.
TYPES OF PRICING OBJECTIVES
1. Price based on competitors

 Pricing based on competitors uses the price a company sets to attract customers. Although
this tactics will undoubtedly appeal to customers who make purchasing decisions solely
based on price, it is not a must for the method to succeed. The company can also utilize
competitor-based to its advantage by either picking a price that is comparable to those of
similar items in the market or by choosing a higher price to convey that the product is
exceptional and well worth the additional cost.

2. Pricing based on profits

 Because businesses still need to turn a profit in order to stay in operation, all pricing is
profit-driven. Although when determining the best price to set, profit is given top
importance under profit-oriented pricing. A profit-oriented pricing plan seeks the middle
ground that enables the company to charge as much as possible for its products or services
Confidence-building strategies
without going too high and alienating potential customers or losing money on lost sales.

3. Pricing for market penetration

 A market penetration pricing strategy is designed to gain traction in a crowded market,

typically by providing a cheap starting price. If the business initially draws customers
based on pricing, it can encourage more individuals to test their items before beginning to
build up a following and audience, that will eventually enable the business to charge more.
4. Price skimming
 The idea behind the skimming price approach is the opposite of a market penetration-based
one. While market penetration employs low pricing to draw attention, skimming makes use
of an established reputation to demand high prices from early adopters. If buyers are
enthusiastic about the items and are willing to pay more to be the first to own them, the
company can charge initial high pricing when the business first launches a new innovation or
a new collection, and then decrease the costs once it has already drawn in the customers
who are willing to pay more.

LESSON 10.2

PRICING DECISIONS
 Before determining its prices, a business must take a variety of other things into consideration.
The costs of the products, the demand, the customers whose needs it is intended to satisfy, the
external environment ( such as the competition, the economy, and governmental regulations),
and other components of the marketing mix (such as the offering’s nature, the stage in which it
is currently in the product life cycle, and its promotion and distribution) are among these
factors.

Pricing decisions entails the following:

• Informing customers about the pricing of your products and services
• Possessing the ability to bargain with wholesalers, retailers and other suppliers and resellers
• Monitoring the impact of pricing on sales
• Recognizing its target market and how price affects how they make purchases
• Becoming familiar with the offering and prices of competitors’ goods and services
• swiftly adapting to market, vendor and customer changes
5
Pricing decisions could be:
 Simple pricing entails charging what rival businesses do for comparable goods and
services. Retailers and wholesalers who deals on commodities frequently employ this
tactic.
 Complex pricing is determined by the uniqueness of a good and service and the price
that consumers are ready to pay. This kind of price is typical for custom furniture,
artwork, and consulting services and is decided upon through discussions with the
client.

Aspect to consider when pricing goods and

services:
1. Psychology of pricing
 Sometimes, how buyers perceived a product’s cost is more important than its
actual cost. Due to this, several industries, such as the real estate and auto
industries, prefer to negotiate using monthly installments as opposed to the
whole transaction price.

2. Product bundling
 When are more likely to just buy one item at a time that when they
would otherwise, bundled pricing can assist boost average sales and
total earnings.
 Example: “ buy one, get one” promotions for consumers products such
as clothes and households products.

6
3. Economies of scale
 New businesses face the challenges of having to meet their fixed costs with fewer sales while also lacking the buying power to lower
their variable costs by securing volume discounts from their suppliers.

In this circumstance, business owners have the following options:

 The first is to maintain pricing above costs while being aware that the higher prices can make it more difficult to gain market share,
and then to lower prices to increase output.
 The second strategy involves settings the price depending on the anticipated break-even point and suffering losses on initial sales in an
aggressive efforts to increase market share.

4. Product cost
 When choosing a price for a product, cost must be the one of the key factors to consider. When expenditures outweigh sales, no
business sales can remain profitable. The most straightforward pricing methods used as a cost plus strategy, in which you add a set
percentage to your costs to established your price. This will ensure profitability as long as the business maintain revenues.

5. Perceived value of goods

 Customers did not really care about a product’s costs; they are ready to pay what they believe it is worth. They will not buy if the costs
cause prices to exceed what they consider to be fair. If the perceived value is substantially higher than your costs, they will cheerfully
pay a price that offers you a significant margin.
6. Competition
 Another important aspect of pricing is competition. While monopolies have nearly unrestricted ability to raise prices, and free
markets are extremely sensitive to price changes.
 If a company can not sell itself apart from its rivals and is perceived as being on par with them, it will always have to compete on
price.

7
6 FACTORS TO CONSIDER INPRICING DECISIONS:

1. Prices of competitors
 Pricing decisions are influenced by the state of the market. The business takes into account that rivals
have set their rates and upheld the quality of their item.

example: a highly congested market, competing businesses would have to check on the pricing from each
other.
2. Product differentiation
 The pricing of the product is influenced by its features as well. Different features are added to the
goods, such as quantity, size, color, or alternative usage in order to draw in customers.

Example: if a business wishes to be different from the competitor, it has to either raise or lower its prices to
be different in the market.

3. Position in the industry

 Because of the reputation of the company as well as differences in quality, different producers’ products
have different prices. A new producer might set cheaper prices for its goods than an existing company,
who might set higher prices. Pricing choices may also influenced by competition.

Example: a new entrant to the market would wish not to offer premium prices, while those who have proven
themselves may opt to offer premium pricing.

8
4. Product cost
 A product’s cost and price are strongly correlated. The price typically cannot or should not be fixed
below its value. Cost is also influenced by price.

Example: Products that are produce from very scarce raw materials, and because of the scarcity of the
said raw material, it would also drive up the prices of a particular product.
5. Business Objectives
 The company may have number of goals, such as obtaining a suitable rate of return, cornering the
market, and maintaining control over sales and revenue. Therefore, a price policy should only be
created after carefully considering the firm’s goals.

Example: The enterprise would decide to become a price leader in the industry or would opt to engage
with a completely different segment in the market. That would also dictate the pricing of its products.

6. Consumer buying behavior

 If a product is purchased more frequently by consumers, lower pricing should be set in order to
have a narrow profit margin. It will make it easier to boost the company’s overall earnings and sales
volume.

Example: Prices are indicated according to the demand of a particular product in the market. Trendy
products would be priced higher as compared to those products that are not currently as popular on the
market.

9
LESSON 10.3

STRATEGIC PRICING
 A key component of a business’s marketing plan is Pricing. The prices a company sets for its products and services have an
impact on its value proposition, profitability, and marketing objectives. Planning successfully aids the company in evaluating the
term of deciding on particular pricing points and using them in promotions.
Pricing strategy is a procedure that links the pricing goals to variables outside of the business. Instead of basing a product’s price
on the cost of manufacturing, strategic pricing bases it on the product’s value to the customers or on competitive strategy.

Pricing strategies must consider the following factors :

 The current situation of the market and industry
 Available resources
 Consumer demand
 Market demand
 Economic situation

The fundamentals of strategic pricing:

1. Marketability
 Pricing’s marketability is crucial. Market analysis is frequently used to determine how much value
consumers place on a product’s characteristics and advantages. A company have probably have poor
sales success if it picks a pricing strategy that causes it to price significantly higher than the perceived
market value. Therefore it must be priced in a way that enables the company to provide significant
value and that puts the marketing team in a strong position for success.

10
2. Profit potential
 Profitability of the company is impacted by pricing. The higher prices a company can normally convince people to pay, the
bigger its potential for profit. However, while setting prices, it must consider both margin and volume. The percentage of profit
that a company makes solely by comparing sales to costs of items sold is known as gross margin. Net profit is significantly
impacted by high gross margin. Low-cost suppliers frequently maintain low profit margins while trying to draw in a huge
consumers on a tight budget.

3. Time and goal oriented

 Pricing should be on line with the overarching business objectives. It must decide most crucially whether to set prices with a
short-term or long-term emphasis. To effectively draw in budget-conscious buyers, some price techniques, such as penetration
pricing, are used. The end goal is to increase pricing. In a similar manner, ongoing short-term discounts and allowances make it
challenging to accomplished price optimization over the long term. The goal of a more value-driven pricing strategy is to create
long-term pricing consistency.

4. Value proposition
 Pricing decisions are not made in vacuum. When a company sets a product’s pricing, it is critical to consider the advantages the
products delivers as well as the entire value proposition. Customers often choose the best value for the goods while considering
their options for purchases. The value proposition is already established if it provides the best price on the market. The highest
possible level of benefits must be offered to prospective clients if the company charges high fees. In the middle, the company
must effectively blend the benefits it offers in relation to the cost.

11
Importance of strategic pricing
 Customers’ willingness to pay for a product may be significantly higher or lower that what a business would
charge if it only set its prices based on cost. A business may be able to raise its pricing by learning what customer
value all about its product. Alternatively, it may be decide that a new product has no possibility of becoming
profitable.

 Geographical pricing is the practice of setting different prices for the items depending on where it sells them. A
requirement to recover shipping expenses, which rise as it ships your goods farther away, can give rise to a
geographic pricing approach. Or, due to their scarcity, the products may be seen as having a higher value in a
different area. When operating in a given market in a given market is difficult due to barriers like high regulatory
costs, businesses may need to boost pricing to break even. Geographical pricing has the benefit of enabling
businesses to make more money in specific circumstances.

 Positioning the products in relation to competing possibilities on the market requires a competitive price plan.
The company uses the product to communicate whether its offering is a better value or of greater quality when
setting its price after taking into account the costs of comparable products. The potential to use a straightforward
instrument to communicate a powerful message is one of the advantages of competition-based pricing, but it
also carries the risk of locking in a price that makes it difficult to break even.

 Value-based pricing can be a component of a competition-based strategy if the company offers something
distinctive or distinctly alluring. In this case, the company may be able to set its own price, provided it can find
customers who recognize the higher value of the product and who have the funds to pay for it. As an alternative,
the company might include value in the pricing by charging a fair price for a product of excellent quality. Given
that value is largely arbitrary, it is advantageous for businesses to develop marketing messages that bolster the
price’s value assertions.

12
Consideration in strategic
pricing :
 Since strategic pricing is a market choice, it should be
based on discussions with the target audience.

 Instead of competing on price with rival businesses,

understand what business clients value and charge
customers accordingly.

 It is crucial to keep a watch on business rivals, but

keep on mind that competitors will not be the ones
buying the goods and that their own pricing strategies
could be flawed.
THANK
YOU !