The pricing policy of the firm may vary from firm to firm depending on its objective. Objectives of a properly planned pricing policy should be logically related to overall managerial goals. Pricing involves a number of decisions related to setting the price of a product.
Objectives of Pricing Policy
Formulation of pricing policy begins with the classification of the basic objectives of the firm. Pricing objectives provide guidance to decision-makers in formulating price policies, planning etc. Pricing objectives have to be in conformity with overall organizational objectives. The most important objective of companies is to have maximum profits. In most of the situation, profit maximization is the main objective of price policy, but it is only one objective. Following may be other objectives of pricing policy in an organization:
- Achieving a Target Return on Investments.
- Pricing the goods based on reasonable costs.
- Stabilization of Price and Margin.
- Increase the market share or growth rate at the expense of immediate profits.
- The Creation of a Broad Market.
- Avoid adverse public reaction consequent on charging a high price.
- Price Differentiation within a Geographical Area.
- Ethical consideration not to reap a high profit.
- Immediate survival of the firm.
- Charge reasonable price so as to have good relations with the government and public at large.
- Maximization of the prestige of the firm rather than profit.
- To safeguard against the emergence of new producers in the same line.
- Although its importance varies from firm to firm, pricing is one of the tools that a firm has at its disposal in its attempt to reach the stated objectives.