Pricing Decision

I define price as the value placed on a good or service by customers at some point in time. It is a measure of what must be exchanged in order to obtain a particular good. Price goes by many names, e g rent, salary, wages, fees, fare, etc. Price is one of the most important elements in determining company market share and profitability. It is the only element in the marketing mix that produces revenue. The other elements represents cost.

Setting the Price.

Pricing is a problem when firms are setting the price for the first time. There are a number of factors to be considered in setting a price for the first time.

  1. Pricing Objectives.

Every firm should decide upon the objectives of pricing before determining the price itself. These objectives include achieving target return on investments. It is adopted by many companies due to the increased awareness of inter-relationship between profit, capital and investment.

  1. Maintaining or Improving Market Share.

Market share is a good indicator of a firm’s success. Most firms are satisfied when their market share is maintained or expand.

market share

  1. Meeting or Preventing the Competition.

Pricing can meet or even prevent competition if a company is a price leader in the industry. It may set prices designed to discourage new competitors from entering the market. In Product introduction low prices are set to discourage competition.

  1. Maximization of Profits.

This is achieved by setting high prices to reap maximum possible profits or offering the product at a low price to attract buyers’ attention or stimulate the sales of other goods.

profit maximization

5.  Survival.

The fundamental pricing objective is survival. Most organizations will tolerate short-term losses interval upheaval in order to continue existing.

survival.jpg

  1. Short-term Profit Maximization.

A very high price is set initially when a product is introduced. The aim is to earn high profits in a short time and recover costs quickly. The price is later lowered to appeal to other segments of the market.

 

 

Post Author: Sam Muya