Objectives of pricing decision - Accounting Assignment Help

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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