Explain the objectives of pricing policy and its aim

Question

Explain the objectives of pricing policy and its aim.

Answer 1

Pricing decisions are generally considered a part of the general strategy for getting a broadly defined purpose. Before finding out the price itself, the management must decide the objectives.

When setting the price, the firm may intend at one or more of the given objectives.

1. Profit maximization: as the primary motive of business is to earn maximum profit, pricing all the time aim at maximization of profit by maximization of sales.

2. Market share: For increasing market share a firm may lower its price within relation to the product of competitors.

3. Target return in investment: The firm must fix the price for the product in a way that this will satisfy expected returns for the investment.

4. Prevent or Meet competition: with the aim of discourage competition a firm may adopt a low price policy.

5. Price stabilization: The other objective of pricing is to stabilize the product prices over a given period of time.

6. Resource mobilization: In this company may fix their prices in a way that adequate resources are made accessible for the firm’s developmental, expansion investment and so forth.

7. Speed up cash collection: Several firms try to set a price that will enable rapid cash recovery as they may be financially tight or may regard future is more uncertain to justify patient cash recovery.

8. Growth and Survival: A significant objective of pricing is survival and getting the expected rate of growth. Profit is less significant than survival.

9. Prestige and goodwill: Pricing also intends at maintaining the prestige and improving the goodwill of the firm.

10. Getting product: quality leadership, Several Companies intend at establishing product quality leader by premium price.