A firm may choose its pricing objectives
from any of the following:
1) To
maximize the profits: the primary objective of the pricing decision is to
maximize profits for the concern and therefore pricing policy should be
determined in such a way so that the company can earn the maximum profits.
2) Price
stability: as far as possible the prices should not fluctuate too often. A
stable price policy above can win the confidence of the consumers. It will also
add to the goodwill of the firm. For this purpose the concern should consider
long run and short run elements.
3) Competitive
situation: one of the objective of the price decision is to face the
competitive situation in the market. Price of the commodities should be fixed
keeping in the mind the competitive situation. Sometime the management likes to
fix a relatively low price for its product to discourage potential competitors.
4)
Achieving a target return: this is a common objective of well established
and reputed firm in the market (either for the company’s name or its brand or
the quality of the product) to fix a certain rate of return on investment. The
prices of the product are so calculated as to earn that rate of return on
investment. Different target return may be fixed for different product but such
returns should be related to a single overall rate of return target.
5) Capturing
the market: one of the objectives of pricing decision may be capturing the
market. A company especially a big company at the time of introduction the
product in the market fixes comparatively lower prices for it’s products
keeping in view the competitive position with an objective of capturing a big
share in the market.
6) Ability
to pay: price decisions are sometimes taken accounting to the ability of
customers to pay , i.e more prices can
be charged from persons having a capacity to pay. Capacity to pay is determined
on the basis of the purchase power of the consumers for which the product is
made.
7) Long
run welfare of the firm: the main aim of some concerns is to fix the price
of the product which is in the best interest of the firm in the long run
keeping the market condition and economic situations in mind.
8) Margin
of profit to middlemen: pricing of the product should be made keeping in
view that middlemen get a fair return on the sale of company’s product.
Otherwise they will lose interest in selling company’s products.
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