Page 113 - Marketing the Basics 2nd

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how customer relationship management theory and practice gives companies an opportunity to build one-on-one relationships with their customers. But first, we’ll outline a six-step framework on how to set the price of a product. Step 1 is to declare the marketing objective.
STEP 1. DECLARE THE MARKETING OBJECTIVE
The first step in determining the price of a product is to declare its marketing objective. The marketing objective is a stated goal a company wishes to accomplish when marketing its product at a particular price. By articulating the company’s objectives, and the process in how they’re going to achieve it, the possibilities of making a pricing error are reduced. There are five marketing objec- tives a company can pursue: maximize short-term profit, maximize current market share, market skimming, product-quality lead- ership or survival.
MAXIMIzE SHORT-TERM PROFIT
In today’s business environment stock prices incur heavy losses for not meeting their expected profit targets. An unfortunate conse- quence of this reality is that most publicly traded firms employ a short-term maximizing objective. Capital almost always flows to assets where returns are perceived to be the highest. Companies that register results in excess of market expectations will be regarded as firms that create more shareholder value, which in turn maintains a high stock price. To maximize short-term profits, the firm must already understand the dynamics of its market. Having that knowledge will assist the company in making good predictions as to how their customers will react to a particular price. Whichever price yields the highest profit, ostensibly, is the price the company charges.
Maximizing current profits may allay the concerns of institu- tional shareholders but in emphasizing short-term profit, the company runs the risk of sacrificing long-term profits. Higher prices make substitutes more attractive. Another drawback to this strategy is that high profit levels encourage competitors to enter the market,