Page 362 - Foundations of Marketing

Pricing Concepts and Management | Chapter 12 329

Figure 12.1 Stages for Establishing Prices

• Development of pricing objectives
1
• Assessment of target market’s evaluation of price
2
• Determination of demand
3

• Analysis of demand, cost, and profit relationships
4
• Evaluation of competitors’ prices
5
• Selection of a basis for pricing
6
• Selection of a pricing strategy
7
• Determination of a specific price
8

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DEVELOPMENT OF PRICING OBJECTIVES LO 1 . Explore issues related to
developing pricing objectives.
The first step in setting prices is developing pricing objectives —goals that describe what
a firm wants to achieve through pricing. Developing pricing objectives is an important task
because they form the basis for decisions for other stages of the pricing process. Thus, pricing
objectives must be stated explicitly and in measurable terms, and should include a time frame
for accomplishing them.
Marketers must ensure that pricing objectives are consistent with the fi rm’s marketing and
overall objectives because pricing objectives infl uence decisions in many functional areas of
a business, including fi nance, accounting, and production. A marketer can use both short- and
long-term objectives and can employ one or multiple pricing objectives. For instance, a fi rm
may wish to increase market share by 18 percent over the next three years, achieve a 15 percent
return on investment, and promote an image of quality in the marketplace. In this section,
we examine some of the pricing objectives that companies might set.

Survival

Survival is one of the most fundamental pricing objectives. This generally means temporarily
setting prices low, even at times below costs, in order to attract more sales. Because price is
a flexible ingredient in the marketing mix, it can be useful in keeping a company afloat by
increasing sales volume. Most organizations will tolerate setbacks, such as short-run losses
and internal upheaval, if necessary for survival.

Profit

Although a business may claim that its objective is to maximize profits for its owners, the pricing objectives Goals that
objective of profit maximization is rarely operational because its achievement is difficult to describe what a firm wants to
measure. Therefore, profit objectives tend to be set at levels that the owners and top-level achieve through pricing

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