Marketing Objectives

Before setting price, the company has to decide on its scheme for the product. If the company has chosen its target market and positioning carefully, then its marketing mix strategy, by including price, will be fairly straightforward. Pricing strategy is highly determined by decisions on market positioning. At the same time, the company can seek additional objectives. The clearer a firm is regarding its objectives, the simpler it is to set price. Instance of common objectives are survival, present profit maximization, market share leadership, and product quality leadership.

Companies set survival as their main objective if they are bothered by too much capacity, heavy competition, or changing customers' desires. To keep a plant going, a company can set a low price, hoping to raise demand. In this case, profits are less significant than survival. As long as their prices cover some fixed costs and variable costs, they may stay in business. However, survival is just a short-term objective. In the long run, the firm has to learn how to add value that consumers shall pay for or face extinction.

Various companies use existing profit maximization as their pricing goal. They estimate what demand and costs will be at different prices and select the price that will produce the maximum existing profit, cash flow, or return on investment. In all of the cases, the company desires current financial results instead than long-run performance.  Other companies desire to obtain market share leadership. They believe that the company along the largest market share will enjoy the lowest costs and highest long-run profit. To become the market share leader, these firms fix prices as low as possible.

A company may decide that it desires to achieve product quality leadership. It normally calls for charging a high price to cover higher performance quality and the high cost of R&D. A company may also use price to achieve other, more particular objectives. It may set prices low to stop competition from entering in the market or set prices at competitors' levels to stabilize the market. Prices may be set to keep the loyalty and support of resellers or to ignore government intervention. Prices may be reduced provisionally to create excitement for a product or to attract more customers into a retail store. One product can be priced to help the sales of other products in the company's line. Therefore, pricing may play significant role in helping to accomplish the company's objectives at various levels.

Nonprofit and public organizations may adopt a number of other pricing objectives. A university aim for partial cost recovery, knowing that it has to rely on private gifts and public grants to cover the remaining costs. A nonprofit hospital can aim for complete cost recovery in its pricing. Marketing Mix Strategy: Price is just one of the marketing mix tools that a company uses to gain its marketing objectives. Price decisions have to be coordinated with product design, promotion, and distribution decisions to make effective and consistent marketing program. Decisions made for other marketing mix variables can affect pricing decisions. For instance, producers by using various resellers who are expected to support and promote their products may have to build larger reseller margins into their prices. The decision to position the product on high-performance quality will mean that the seller has to charge a higher price to cover higher costs.

Companies frequently position their products on price and then base other marketing mix decisions on the prices they want to charge. Here, price is a critical product-positioning factor that defines the product's market, competition, and design. Various firms support such price-positioning strategies along a technique known target costing, potent strategic weapon. Target costing reverses the common process of first designing a new product, determining its price, and then asking, "Can we sell it for that?" Rather, it begin with an ideal selling price based on customer considerations, and then targets prices that will ensure that the cost is met.

Other companies deemphasize price and utilized other marketing mix tools to make nonprice positions. Frequently, the best strategy is not to charge the lowest price, but instead to differentiate the marketing offer to make it worth a higher price. Therefore, the marketer has to consider the entire marketing mix when setting prices. If the product is positioned on nonprice factors, then decisions regarding promotion, quality and distribution will closely affect price. If price is a critical positioning factor, then price will closely affect decisions made regarding the other marketing mix elements. Though, even when featuring price, marketers require remembering that customers hardly buy on price alone. Rather, they seek products that provide them the best value in terms of benefits retain for the price paid. Therefore, in most cases, the company will consider price along all the other marketing-mix elements while developing the marketing program.