1. Chapter 7: Pricing objectives

2. Learning outcomes After this study unit, you should be able to:
Discuss the various profit-oriented objectives that an organisation could consider
Explain the sales-oriented objectives that could be implemented by an organisation
Discuss the various status-quo objectives that an organisation could consider

3. Introduction
When making pricing decisions, marketers must remember that they are never going to be right every time.
Pricing is an interactive decision made in conjunction with the organisation’s mission statement and goals and objectives.
Organisations should base their price setting much more on consumer demand, and not merely on the profit goals of the organisation.
Some organisations might even decide to keep their pricing objectives the same, in other words, to keep the status quo.

4. Types of pricing objectives
The first step in any pricing strategy is to develop pricing objectives to determine what the pricing strategy is to accomplish, and to give the pricing plan clear direction.
Like all other marketing mix objectives, the pricing objectives should support the marketing objectives, which in turn support the broader organisational objectives.
The marketer therefore needs to consider the organisational and marketing objectives in order to determine how pricing can best help meet these goals.

5. Types of pricing objectives cont…
It is also important to consider the pricing objectives in relation to the other marketing mix objectives.
The Three major groups of pricing objectives include:
Profit-oriented objectives including targeting the return on investment and getting the highest profits possible.
Sales-oriented objectives which include selling more of the product and increasing the market share or keeping it the same.
Objectives to keep things as they are, which include stabilising prices in the industry and meeting the competition.

6. Profit-orientated objectives
Many organisations will try to set prices that will maximise current profits.
Profit maximisation is often impractical in smaller organisations as they might not have the time or expertise to develop models to determine the profit maximisation.

7. Profit-orientated objectives cont…
The most common profit objective is the target return on investment (ROI) objective, where the pricing objective states a specific level of profit, such as a percentage of sales or return on capital invested, as an objective.
Setting a meaningful ROI target requires a good understanding of cost and revenue as well as a balance between generating profits in the short term while attaining market growth and strengthening the market position.

8. Sales-orientated objectives
Sales objectives usually related to market share, relative position and sales volume.
Some organisations want to maintain their market share and may consider either keeping their prices the same or even reducing prices to compete against competitors.
If the objective is to increase market share the marketer may have to consider pricing their product at a lower price to make the product more attractive, or even lowering prices to attract those willing to switch from other competitive brands

9. Sales-orientated objectives cont…
When setting sales objectives relative to market share of the industry or relative position, marketers set objectives based on their share of total industry sales.
With sales objectives seeking some level of sales volume emphasis is on moving or selling units of products, rather than on profitability.
This technique is often used by organisations that sell multiple products at different prices and are concerned with matching production capacity with unit volumes.

10. Status-quo objectives
Marketers that are happy with their market share and level of profits often adopt status quo objectives.
This is often referred to as “don’t rock the boat” pricing objectives.
A status quo price objective is a tactical goal that encourages competition on factors other than price.

11. Status-quo objectives cont…
Convenience stores such as those found at petrol service stations, for example, sell products that are often more expensive than those found in supermarkets. These stores compete on the grounds of being conveniently located and open at night, rather than on price.
An organisation might adopt this pricing objective in order to remain competitive or to avoid a price war with its competitors.

12. Summary
Pricing is very important in marketing, and depending on the circumstances in the environment in which an organisation operates, an organisation will select direct pricing objectives in order to achieve its overall marketing objectives.
As discussed in this chapter, pricing objectives include profit-orientated, sales –orientated and status-quo objectives.