The following points highlight four main pricing objectives of a firm. The objectives are:- 1. Target Return on Investment 2. Long-Term Stability of Product Prices 3. Market Share Maximisation and Stabilization 4. Meeting Competition.
Objective # 1. Target Return on Investment:
Earning a satisfactory rate of return on capital employed on a long-term basis is the most common pricing objective of a firm. In ROI, the investment figure includes all these assets, which are utilised in producing and marketing the product. The objective, here, is to attain a particular return on the entire range of products rather than on individual products.
When a new product is contemplated to be introduced in the product line, the management must ensure that this is capable of attaining the target ROI.
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As regards the existing established products which are in a competitive situation, a lower ROI may be accepted as the objective. The ROI objective has the advantages of maintaining price stabilisation and of enhancing the goodwill of the customers.
Objective # 2. Long-Term Stability of Product Prices:
In order to achieve this adjective, a firm usually seeks to set a price based on the ‘full cost’ principle; that is, the price is fixed by adding normal profit to the cost of the product. The amount of margin may differ from product to product even in different situations. The management’s endeavour should always be to maintain a price line without any change even in the face of short- term fluctuations of cost.
This objective has the following merits:
(i) It stabilises the sales turnover,
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(ii) It avoids uncertainty and panic buying which usually result from frequent price changes,
(iii) It reduces the administrative costs of frequent price changes such as price lists revision, pricing decision, price announcements through various media and to various government authorities,
(iv) It eliminates the evils of price-competition and fosters non-price competition, and
(v) It helps in retaining the goodwill of the customers.
Objective # 3. Market Share Maximisation and Stabilization:
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In an oligopoly market, each of the firms has a significant share in the market. So, the Stabilisation of such market share becomes an important policy objective. For market share stabilisation, a firm has to take an active role by balancing the factoral elements of the marketing mix such as place and promotion activities. So, these elements become the objectives to be attained for a firm’s pricing policy.
Objective # 4. Meeting Competition:
A significant price change often leads to price-war, or even governmental intervention. In the face of keen competition, maintenance of status-quo in price becomes the best policy objective of a firm. Further, this pricing policy can help in preventing the entry of new firms into the industry.