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Price Determination
Pricing Objectives
Pricing objectives
 what a marketer wants to achieve through pricing
Five common pricing objectives
1. Maximize profit
2. Maximize sales
3. Increase market share
4. Meet competition
5. Return on investment
Maximize Profit
Strategy: charge the highest price customers are willing to pay.
 used when product has a short life
 used when company has a monopoly
 used when new product is introduced
Typically a short-term objective
 due to short product life span
 competition will drive prices down
Maximize Sales
Strategy: offer the lowest price possible to get the largest number of customers.
 used for new products to attract customers away from competition
After building customer loyalty, prices may gradually increase.
Increase Market Share
Strategy: lower prices or offer premiums to get more customers.
 used to lure customers away from competitors’ products
Similar to maximizing sales strategy.
Meet Competition
Strategy: set prices in relation to competitors’ prices.
 may set prices higher than, equal to, or lower than the competition depending on
company’s goal and image
Return on Investment
Strategy: price products so that they earn a certain return on the investment.
Return on investment
 a ratio that tells you how much you earned as a percentage of the investment you made
 return is another term for profit
Profit
Investment
=
Simple ROI
Return on Marketing Investment
Return on marketing investment (ROMI)
 a metric that measures the overall effectiveness and impact of a marketing campaign
Gross Profit
−
Marketing
Investment
Investment
Ways to measure ROMI
 new customer metrics
 product metrics
 customer retention metrics
=
Simple ROMI