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PRICING OBJECTIVE

                   Pricing Objective

         The foremost managerial task in the pricing function is to set suitable and relevant pricing objectives. Pricing objectives are the benchmark against which the management attempts to fix prices and formulate policies and strategies. Pricing objectives are set by a company within its corporate and marketing objective. Pricing objectives may vary from company to company due to their own corporate and marketing objectives.

(1) Target Return on Investment (ROI): Return on investment as a pricing objective indicates expectations of a certain rate of return on the capital employed in a particular financial year. Keeping in view the target return on investment, prices of products are fixed in such a manner that total sales revenue exceeds the total cost by sufficient amount to provide the desired return on the total investment.

(2) Price Stabilisation: The objective of the price policy may be to stabilise the price of a product. In industries where demand can fluctuate frequently and sometimes violently a large company which is market leader will try to maintain stability in its pricing policies. Price stabilisation objective may be attained by fixing prices in such a manner that during a boom the prices are not allowed to rise beyond a point, while during a business slump prices are not allowed to fall below a particular level.

(3) Maintain or Improve Market Share: One major pricing objective is to maintain or increase market share by a company. In developed economies the task for the management of a company is to maintain its market share in the face of stiff competition. In developing countries such as India where market expansion is a phenomenon of economic development, the market share as a pricing objective has vital significance.

(4) To Meet or Prevent Competition: The pricing objective may be to meet or prevent competition. If a marketing company is not a price leader it should follow the objective of meeting competition through its pricing structure. It may neutralize the impact of price competition initiated by a price the objective to prevent competition is relevant when it desired to initiate price changes in such a way so as to discourage competitors from entering into the industry.

(5) Profit Maximisation: Profit maximisation is a common goal or objective. Profit maximisation is perceived by the public as profiteering. Profiteering is earning profits through creation of artificial shortage of company’s products. Whereas, profit maximisation is possible only in limited situations e.g. where there is a wide gap between demand and supply or when the product is innovative in nature. A company having profit maximisation objective will attract new investment and the resultant enhance production will set the balance between demand and supply in due course of time.

(6) Resource Mobilisation: Another pricing objective of the company may be resource mobilisation. In this objective the prices of company’s products are determined in such a manner that sufficient funds are made available either for expansion of existing marketing operations for the development of new products. Many private and public sector units operating in India have resource mobilisation as one of their major pricing objectives.    

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