Selecting the Price Objective

You have to decide how you want to position your product with respect to price-quality equation. You may want to offer:

Best quality and charge a higher price or lower price.

A lot of such choices depend on the product, alternatives available to the consumer,and your business objectives. For example, when mobile phones were introduced in the Indian market, the mobile operators used to charge very high price per minute of talk with poor voice quality. As the competition increased, per minute talk time has reduced considerably with significant improvement in voice quality.So, considering initial market response mobile service was a premium service and hence premium pricing strategy was accordingly adopted by the players.

For your business you have to decide the price objective before setting the price.There can be following possible price objectives:
  •  Sustenance
  •  Maximizing current profit
  •  Maximizing market leadership position
  •  Maximizing market leadership

In sustenance, a company aims to generate sufficient revenue so that the company can survive and necessarily make profit. The company sets the price such that,that it recovers the variable cost and some fixed cost. In situations where a company has installed a large capacity or is facing intense competition is more likely to set sustenance as price objective.

ii. Maximizing the Current Profit

In this objective, the company sets a price in a way which will maximize its profit.This objective assumes that company is confident about its demand curve and cost structure at different demand points. In case, the company keeps very high prices, it may catch attention of competitors, government, and alternative product companies. This may led to some kind of retaliation. For example, some years back milk powder traders had increased the prices resulting in governmentthreatening to allow imports with liberal conditions. This threat from government led to softening of prices.

iii. Maximizing Revenue

In this objective, the company tries to actively manage the price in such a way that it is able to capture maximum share of demand at each price point. This approach assumes that the company knows the demand curve of its product and is able to alter its other marketing mix elements at each price point.

iv. Maximizing Market Leadership

In this approach, the company sets a lower price to capture largest market share of the product. Using this objective, the company targets long term profitability as it knows that cost per unit could reduce as the scale of production increases.This approach is more sited to companies which have a wide suit of products in the same need segment. For a single product company, following this approach might be difficult as it may require subsidizing losses from low prices in the beginning. For example, Amul could afford to keep low prices for ice-cream as it had profits from other products coming.

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