Maung Kyi - The Principles of Marketing and Establishment, Volume 3

Marketing Objectives

A company must decide on its product strategy before setting prices. If the company has carefully selected its target market and its positioning in that market, then the marketing mix strategy, including pricing, is fairly straightforward. Evidence suggests that pricing strategy is determined by market positioning.

At the same time, the company can adjust its objectives. The clearer the objectives, the easier it is to set prices. Common objectives include survival, current profit maximization, market share leadership, and product quality leadership.

When companies are oversupplied, when competition is fierce, or when consumer preferences are changing, survival is their primary goal. The company may set prices low enough to keep its factories running. This reduction is likely done in the hope that demand will increase. In such cases, profit is not as important as survival. As long as prices cover some of the variable costs and some of the fixed costs, they can stay in business. However, survival is only a short-term goal. In the long run, the company must learn how to provide the value that customers are willing to pay. If they cannot provide this value, they face bankruptcy. Many companies set current profit maximization as their pricing goal. They determine how much demand there will be at various prices, They estimate how much they will cost and choose the price that will yield the highest immediate profit. In other words, they choose the price that will yield the highest cash flow and return on investment. However, all of these concepts show that the company is more interested in immediate financial results than in long-term viability. Some companies want to achieve market share leadership. They believe that the company with the largest market share will have the lowest costs and the highest profits in the long run. In order to become the market share leader, these companies set prices as low as possible.

A company may decide to achieve product quality leadership. This goal requires setting prices high to cover the costs of advanced manufacturing and R&D.

A company can use pricing to achieve other, more specific goals. It can lower its price to prevent competitors from entering the market. Or it can adjust its price to match its competitors' prices to stabilize the market. It can maintain price to maintain customer loyalty, or to gain dealer support, or to avoid government intervention. It can also temporarily lower its price to create excitement for a product. Or it can lower its price to increase the number of customers in a retail store. The price of one product in a company's online store can create sales for other products. Therefore, it is important to understand how important pricing is to achieve the company's goals at various levels.

Non-profit and public organizations may have other pricing objectives. A university may set a goal of partial cost recovery. In doing so, it is hoped that donations and contributions from the public will cover the remaining costs. A nonprofit hospital may set a goal of full cost recovery. A nonprofit theater group may aim to fill its theater seats. Ticket prices are set with this goal in mind. A social service agency may set social prices based on the income levels of different individuals.

Marketing mix strategy 

(Marketing Mix Strategy)

Price is one of the marketing mix tools. A company must use marketing mix tools to achieve its marketing objectives. Pricing decisions must be coordinated with product design, distribution, and promotion. This coordination is necessary to ensure that the marketing program is effective. Decisions about other variables in the marketing mix can also affect pricing decisions. For example, manufacturers who rely on a large number of resellers may need to build in a large profit margin for retailers in their product prices. This will help them promote their products. If a company decides to position itself in the market with a high level of service, the seller will have to raise prices to cover its costs.

Companies often base their decisions about where to place their products in the market on price. They base their decisions about other marketing mix decisions on the price they charge. Here, price is the most important factor in determining the market, competition, and design of a product. Many companies complement their price positioning strategy with a method called target costing. Target costing is a powerful strategic tool. Target costing reverses a process that is already underway. The usual process is to first design a new product, then estimate the cost of that design. Then ask the question, “Can we sell the product?” Instead, consider the customers first, and then figure out a standard selling price, and then target the cost of selling at that price.

The original Swatch watch is a good example of the target costing method. Instead of starting from its own production costs, Swatch first surveyed the market.