Price is an important part of the Marketing Mix because it directly related to the organizations product positioning. There are several pricing objective that should be identified that will help an organization determine the optimal price. The clearer the organizations objective, the easier it will be to set the price. Five major pricing objectives are survival, maximum current profit, maximum market share, maximum market skimming, and product quality leadership.

Survival:

Many organizations identify this objective to determine the price of their product or service. The benefit of survival is as long as the price point covers the fixed and variable costs, the organization can stay in business. The draw back to the objective is it is really only short term thinking.

Maximum Current Profit:

Some organizations set a price that will maximize their current profits. The will have to estimate demand and variable costs associated with unconventional pricing in order to develop a price to maximize the return on investment.

Maximum Market Share:

Many companies want to maximize their current market share and price their product accordingly. The thought behind this objective is that a higher sales volume will lead to a lower price, thus a higher long-run profit. The organization would set a lower price for their product or service with the thoughts that they will penetrate the market at a faster rate which would increase market share. Maximum market share pricing works well if the market is highly price sensitive, production costs are very low, and the low price point will discourage competitors from entering the market.

Maximum Market Skimming:

Many organizations set their prices in order to maximize market skimming. The object behind skim pricing is to set the price of a product or service high to start and then lower it slowly over time. Companies like Sony practice this type of pricing strategy. Market skimming makes sense if there is a high demand for the product or service, cost for production is very low, high initial price will steer away competitors, and the higher price gives the image of a high quality product.

Product Quality Leadership:

Product quality leadership truly represents how well a companies brand is recognized within a particular market. For example, if a product or service is characterized as “higher quality,” the organization may create a price point high enough not to be out of purchasing rage of their target consumer.