Types of Pricing Objectives
Four Types of Pricing Objectives
Price is a vital component of a marketing mix, also known as the "four Ps" of marketing. The other components are product, place and promotion, all of which constitute costs. Price, on the other hand, generates a return as it supports the other marketing-mix elements. Although supply and demand drive pricing decisions, they're not the only factors. Any number of pricing objectives may come into play, but four in particular apply to most businesses.
Survival
Prices are flexible. A company can lower them in order to increase sales enough to keep the business going. The company uses a survival-based price objective when it's willing to accept short-term losses for the sake of long-term viability.
Profit
Price has both direct and indirect effects on profit. The direct effect relates to whether the price covers the cost of producing the product. Price affects profit indirectly by influencing how many units sell. The number of products sold also influences profit through economies of scale -- the relative benefit of selling more units. The primary profit-based objective of pricing is to maximize price for long-term profitability.
Sales
Sales-oriented pricing objectives seek to boost volume or market share. A volume increase is measured against a company's own sales across specific time periods. A company's market share measures its sales against the sales of other companies in the industry. Volume and market share are independent of each other, as a change in one doesn't necessarily spur a change in the other.
Status Quo
A status quo price objective is a tactical goal that encourages competition on factors other than price. It focuses on maintaining market share, for example, but not increasing it, or matching a competitor's price rather than beating it. Status quo pricing can have a stabilizing effect on demand for a company's
Price is a vital component of a marketing mix, also known as the "four Ps" of marketing. The other components are product, place and promotion, all of which constitute costs. Price, on the other hand, generates a return as it supports the other marketing-mix elements. Although supply and demand drive pricing decisions, they're not the only factors. Any number of pricing objectives may come into play, but four in particular apply to most businesses.
Survival
Prices are flexible. A company can lower them in order to increase sales enough to keep the business going. The company uses a survival-based price objective when it's willing to accept short-term losses for the sake of long-term viability.
Profit
Price has both direct and indirect effects on profit. The direct effect relates to whether the price covers the cost of producing the product. Price affects profit indirectly by influencing how many units sell. The number of products sold also influences profit through economies of scale -- the relative benefit of selling more units. The primary profit-based objective of pricing is to maximize price for long-term profitability.
Sales
Sales-oriented pricing objectives seek to boost volume or market share. A volume increase is measured against a company's own sales across specific time periods. A company's market share measures its sales against the sales of other companies in the industry. Volume and market share are independent of each other, as a change in one doesn't necessarily spur a change in the other.
Status Quo
A status quo price objective is a tactical goal that encourages competition on factors other than price. It focuses on maintaining market share, for example, but not increasing it, or matching a competitor's price rather than beating it. Status quo pricing can have a stabilizing effect on demand for a company's