The ultimate objective of pricing

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Reference no: EM132232135

The Ultimate Objective of Pricing

How would you respond to the statement "profit maximization is the only legitimate pricing objective for the firm?" Explain your reasoning.

Stating that "profit maximization is the only legitimate pricing objective for the firm" is completely wrong. Although this can be true for a very few businesses, it can't apply to all. For instance, most firms that are just entering the market want to focus on sales and unit volume in order to build up their market. If a firm was to enter the market strictly focusing on profit maximization, there would be a good chance that they fail. You could also be on the over side of the spectrum, where you are a firm that is struggling to make sales and survival can be your only objective to consider at that point. In that stage you want to be focused on improving your cash flow, not what will maximize your profit.

A well ran business must focus on many objects in order to be successful. Yes, profit maximization can very well be one of them, but it can't be the only. A good business factors in many objectives wether its long term profit, target return, sales, market share, unit volume and even social responsibility. Brands like Nike and Adidas wouldn't be around if they strictly focused on making the most profit from a product. Instead they balance it out where they make a nice profit, but still focus on a massive amount of sales and unit volumes.

Required: What are you think about this above post? Write 80 words. Please writre positive comments.

Weighing Approaches to Pricing- 4 general pricing approaches-

1. Demand-oriented pricing approaches stress consumer demand and revenue implications of pricing and include seven types: skimming, penetration, prestige, odd even, target, bundle and yield management.

2. Cost-oriented pricing approaches emphasize the cost aspects of pricing and include two types: standard markup and cost-plus pricing.

3. Profit-oriented pricing approaches focus on a balance between revenues and costs to set a price and include three types: target profit, target return-on-sales and target return-on-investment pricing.

4. Competition-oriented pricing approaches stress what competitors or the marketplace are doing and include three types: customary, above-at or below-market and loss-leader pricing.

Which of the four general pricing approaches would you select if you were to manage a car company that had high fixed costs but relatively low variable costs? Why?

I would chose the Demand-Oriented Approach because it has the most options that I think fit best with a car sales company. My choice to employ one tactic over another would really be made based on what kind of car company we are whether we are selling high end BMWs or we are a used car company. If it was to be of the high end variety I would first use skimming tactics as people are often drawn to wanting new car features and luxuries and are not as price conscious when a new car is released. After skimming, I would flip over to using Prestige pricing because BMW already has made a name for itself and has forged the way in that there is demand for them even at their high prices.

If it were to be a used car dealership, I think that Odd-Even pricing at least on the ticket price posted on the neon sign in the windows of the cars would work in attracting buyers. I think it really depends like I said on what kind of car dealership I was looking at because I would approach them both differently. With a new car dealership I would try to make as much money as possible in the skimming phases when the new cars are first released to take care of the high fixed costs throughout the year allowing us to cruise through the rest of the year when people are less willing to pay top dollar for the vehicles and we could make just enough to take care of our relatively low variable costs. If it was a used car dealership however, the pricing would have to be a bit more on the Competitive side as people in this market are usually just looking for the best deal and we would not have that new car advantage to keep us afloat.

Reference no: EM132232135

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