Question

Discuss the five objectives of Pricing in detail.

Mention any two objectives of Pricing.

Answer 1

1. Target rate of return: An adequate return on investment is an important pricing objective. The idea is to secure a sufficient return on capital employed after covering the cost of production and distribution. Prices are so set that the total sales revenue exceeds the total cost by the estimated profit amount.
2. Price stability: A firm seeks to cut or eliminate cyclical price fluctuations and avoid price wars. All firms try to avoid price wars. No firm is willing to cut prices for fear of retaliation by other firms.
3. Market share: The sales of a firm in relation to those of competitors is a very meaningful mark for measuring the market position or success. Maintaining or improving market share is a more profitable objective in growing markets. Firms manufacturing refrigerators, washing machines, etc. reduce prices to capture a larger share of the growing demand in India.
4. Meet or prevent competition: In a market characterized by cut throat competition firms often take pricing decisions to meet or prevent competition. An established firm may cut prices drastically to prevent competitors from entering a market. Sometimes a company adopts below cost pricing to fight competition.
5. Profit maximisation: Firms pursuing this objective try to earn as much money as possible. Small and little known firms may try to charge as much price as the customer can bear. Due to high profits new entrepreneurs will be attracted into the industry and prices will come down in the long run.