Pricing Objectives

Definition

Pricing objectives are the specific goals or targets that a business aims to achieve through its pricing strategies. These objectives guide the company's approach to setting and adjusting prices for its products or services, and they are critical considerations in the overall pricing policy and decision-making process.

5 Must Know Facts For Your Next Test

1. Pricing objectives are closely linked to a company's overall marketing and business strategies, as they help align pricing decisions with the organization's broader goals.
2. The specific pricing objectives a company chooses will depend on factors such as the competitive landscape, the stage of the product's life cycle, and the target market's price sensitivity.
3. Effective pricing objectives balance the needs of the business (e.g., profitability, market share) with the needs and expectations of customers.
4. Pricing objectives can evolve over time as a business and its market environment change, requiring periodic review and adjustment of pricing strategies.
5. Clearly defined and communicated pricing objectives help ensure pricing decisions are consistent, defensible, and aligned with the company's strategic priorities.

Review Questions

• Explain how pricing objectives relate to the five critical Cs of pricing.
  • The five critical Cs of pricing - Customers, Costs, Competition, Company, and Collaborators - all directly influence the pricing objectives a business sets. For example, a focus on customer value (Customers) may lead to pricing objectives centered on market share or customer retention, while a focus on costs (Costs) may prioritize profit maximization. The competitive landscape (Competition) and the company's own strategic goals (Company) also factor heavily into the pricing objectives chosen. Collaborators, such as distribution partners, can also impact pricing objectives and the overall pricing policy.
• Describe how the five-step procedure for establishing pricing policy relates to pricing objectives.
  • The five-step procedure for establishing pricing policy - 1) Determine pricing objectives, 2) Estimate demand, 3) Assess costs, 4) Analyze competitor pricing, and 5) Set the price - directly incorporates pricing objectives as a critical first step. The pricing objectives set by the business will then guide the subsequent steps, such as how demand is estimated, how costs are assessed, and how competitor pricing is analyzed. Ultimately, the pricing objectives established will inform the final price setting to ensure it aligns with the company's strategic goals.
• Evaluate how a business might adjust its pricing objectives over time in response to changes in the market or the company's own strategic priorities.
  • As a business and its market environment evolve, the company may need to re-evaluate and adjust its pricing objectives accordingly. For example, a company that initially focused on market share maximization may shift to profit maximization as it gains a stronger foothold in the market. Or a business may temporarily prioritize revenue maximization over profits to fund new product development or expansion into new markets. Factors such as increased competition, changes in customer preferences, or the introduction of new technologies could all prompt a business to revisit and potentially modify its pricing objectives to ensure they remain aligned with the company's overarching strategic goals.

Related terms

Profit Maximization: A pricing objective that aims to set prices at the level that will generate the highest possible profits for the business.

Market Share Maximization: A pricing objective that focuses on gaining the largest possible market share, even if it means sacrificing short-term profits.

Revenue Maximization: A pricing objective that seeks to set prices to generate the highest total revenue for the business, without necessarily maximizing profits.