Pricing can be defined as the procedure of determining a suitable price for the product, or it is an act of setting price for the product. Pricing objectives are another significant factor affecting the fixation of the price of a product or a service. Objectives are related to sales quantity, prosperity, market shares, or competition.
Usually the objective is affirmed to be exploiting the profits. But there is dissimilarity in maximizing profit in the short run and in the long run. If the firm decides to exploit earnings in the short run, it would tend to accuse utmost price for its products. But if it is to exploit its total profit in the long run, it would opt for a lower per unit price so that it can capture larger share of the market and earn greater profits through increased sales. Each pricing objective requires a different price-setting strategy in order to successfully achieve business goals.
Apart from profit maximization, the pricing objectives of a firm may include:
(a) Obtaining Market Share Leadership: If the firm’s objective is to obtain a big market share, it keeps the price per unit low so that there is an increase in sales.
(b) Surviving in a Competitive Market: If a firm is facing difficulties in surviving in the market because of intense competition or introduction of a more efficient substitute by a competitor, it may resort to discounting its products or running a promotion campaign to liquidate its stock; and
(c) Attaining Product Quality Leadership: Generally, firm charges higher prices to cover high quality and high cost if it’s backed by above objective.
Thus, the price of a firm’s products and services is affected by the pricing objective of the firm.