Meaning, Objective & Importance of Pricing

Meaning of Pricing

Pricing means the process of selecting the pricing objectives, determining the possible range of prices, developing price strategies, setting the final price, and implementing and controlling pricing decision. The determination of price is very important and crucial decision. It affects all parties involved in the production, distribution, and consumption of goods. Price affects the volume of production and the amount of profit. It is a source of income to distributors.

According to M.J. Jones and S.W. Jetty, “Pricing begins with an understanding of the corporate mission, target markets, and the marketing objectives; then pricing objectives are developed; next management estimates as to extent of flexibility in establishing prices by studying costs and profits internally and demand and competition externally; prices are, then set between these two extreme ends by deciding price strategies in the light of objectives so set; specific methods are used to set prices; final aspects in implementation and control that includes effective monitoring to get feedback on consumer response and competitive reaction.”

According to W.J.Stanon, “Pricing is the functions of determining the products value in monetary terms.”

_{^{Source:www.allbusiness.com}}

Objectives of Pricing

The pricing objectives reflect overall goal of the organization. It describes the what an organization wants to achieve through pricing. All the pricing policies and strategies are determined by the parameter of pricing objectives. So, pricing objective provides the guideline-setting the pricing policies and strategies. Moreover, the pricing objectives determine the overall objectives of the organization. The pricing objectives are as follows:

1. Profit Oriented Objectives

Profit oriented objectives focus on profit. This objective can be profit maximization and achieve target return.

• To maximize profit:

One of the objectives of pricing is to maximize the profit. It is very important to maximize the profit to run the organization.Some company set price to their products or services with a view of maximizing profit. It is very important to focus on profit maximization.

• Achieving target return:

Another objective of pricing is to achieve target return.Some company may determine the price of their goods or services to achieve a certain return on investment or on sales. This is the desired profit. It is necessary to have target return in the pricing process.

• Achieving target return on sales:

It is necessary to achieve target return on sales in pricing.Mostly resellers manage their pricing to achieve a target return on sales. For example, 10% of sales. If there is not more competition this objectives can be used.

• Achieving target return on investment:

Pricing should focus on achieving target return on investment too.Manufacturing company manages pricing in order to achieve specified return on investment in manifesting, research and development, establishment and commercialization. For example, 5% on investment.

2. Sales Oriented Objectives

Sales oriented pricing objectives focus on sales volume rather than on profit. The profit can be to gain sales volume and market share.

• Sales volume increase:

One of the pricing objectives may be determined in terms of increasing sales volumes over the certain period of time. For example, 10% increase annually. This does not mean that profit should be avoided. Organization believes that higher sales volume will lead to lower unit costs and higher long run profit. It is necessary to focus in the increment in sales volume of the company.

• Maintain market share:

Pricing should have the basic objectives in maintaining market share.Market share is really a meaningful measure of the success of a firm's marketing strategy. A market share price objective can be either to maintain the market share, to increase it or sometimes to decrease it. The company uses the price as an input to enjoy a target market share. This market share is normally expressed as a percentage of the total industry sales.

3. Status Oriented Objectives

Status oriented pricing focus on maintaining the current position. This objective can be described as “Don’t Rock the Boat” objective. The large companies in order to minimize the risk of loss and maintain their status adopt this objective. Organization does not take any initiative in the price change. These objectives are as follows:

• Stabilization of price:

Pricing should have the objectives in stabilizing the price of a product.Some organization may set their pricing objective in order to maintain or stabilize price and prevent from market uncertainty. These objectives are adopted for minimizing the risk of loss. Small organizations in market adopt these objectives. These objectives build up their status and goodwill.

• Meet competition:

The objective of pricing is to meet the competition in the market. Now there is big competition in the market.In highly competitive market some organization may set the meet competition. Under this objective organization set the prevailing market price. It is important to meet the competition in the market. Without it, market cannot achieve its objectives.

Importance of Pricing

The importance of pricing has been increasing substantially in the recent years. The role of the price is crucial not only in the national economy but also in the marketing sector, especially to the marketing organization or executives. Pricing is important to the economy, to the organization and to the customers.Some of the importances of the pricing in the business can be :

• Profit Margin
• Sales Volume
• Position
• Market share

_{^{Source:www.slideshare.net}}

References:

Koirala, Dr. Kundan Dutta. Elementary Marketing. Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd, 2014.

Thapa, Gopal, Dipendra K. Neupane and Dilli Raj Mishra. Introduction to Marketing. Kathmandu: Asmita Books Publishers and Distributors (P) Ltd., 2014.