Pricing objectives are goals that define what a business plans to achieve with pricing strategy. In other words, before defining a price it is common to define an objective for what you're trying to achieve. The following are common types of pricing objective.
Setting a lower price than the competition. In many cases, the firm with the lowest price gains market share as many customers will purchase on price alone. Risks a price war whereby prices spiral downward until all firms are unprofitable.
Revenue & MarginsFinancial targets for pricing such as revenue and margins.
Closing SalesSales teams typically have a primary objective to close as many sales as possible. This influences pricing as sales managers may be given leverage to set discounts based on factors such as negotiations and the size of a sale.
YieldFirms that have inventory that expires at a point in time such as a seat on an flight typically want to sell at a high selling price but also don't want to be left with unsold inventory. Meeting these two objectives requires complex strategies such as yield management and revenue management.
Charging a high price that is never or rarely discounted to preserve the status or quality of your brand. Premium pricing requires discipline as it limits the quantity that can be sold. For example, a strong luxury brand could easily drive higher sales with discounts but this may damage the brand's status and future sales.
Price DiscriminationThe objective of charging a high price to customers who are willing to pay more while still selling to price sensitive customers. For example, coupons that are only good on a Tuesday may attract your price sensitive customers while customers who are willing to pay more will shop at their convenience.
DifferentiationThinking of price as one of the differentiation factors of your brand or product. For example, aiming to be the cheapest organic coffee on the shelf.
Market PriceIf your selling a commodity product your objective might be simply to accurately track to market prices.
PromotionSetting prices that customers find interesting, unique or compelling. For example, a telecom company that offers clear flat rate prices with unlimited bandwidth when competitors have complex billing methods that are unpopular.The objective of recouping product development costs by initially setting a high price for a product that goes down with time. This works when your brand has fans who want to be first to try new releases.
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