7.3 Pricing objectives
The traditional approach to pricing, especially among large corporations, is to put a value on goods or services that will allow the organisation to make a profit. These are profit-oriented objectives . The idea is to set a net profit percentage or target return on investment. The goal of business, therefore, is profit maximisation, but you need to realise that maximising profits in the long term can sometimes mean allowing for a short-term loss. The corollary to this, however, is usually true ¾ firms that maximise profit in the short-term tend to be unprofitable in the long term.
Sales-oriented objectives in relation to pricing state the aims of the business in terms of what share of the market the business hopes to gain, or rate of sales growth it hopes to achieve. Volume objectives could be sales growth based ¾ increase the ability of non-users to buy or use more of a product or service ¾ or market share based. The airfare pricing that followed deregulation is an example of a sales-oriented objective rather than a profit-oriented pricing objective.
Another type of objective is tactical that may be pricing directed at the competition. A firm may use a price tactically, not to increase profit or demand, but to encourage the exit of marginal firms from the marketplace or to avoid price wars.
Tactical pricing could also be directed towards government in order to pre-empt investigation and control. Or it could be directed at the consumer to change perception, create interest and increase/decrease traffic.
Consider this
Think of some examples of tactical pricing in the maritime industry.
Turn now to the next reading to catch up with your text.
In your text
Kotler et al. (2004) Chapter 13, pp. 482-485, 'Marketing objectives' and 'Marketing mix strategy'.
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