Let’s say you have developed a comprehensive and innovative pricing strategy. But how to bring it to life? This is where the pricing objectives come into play. Strategy and objectives are the two sides of the same coin and without the concise and relevant objectives, your strategy is worthless.
This article will explore the essence of pricing objectives by illustrating their definition and significance. Through real-world pricing objectives marketing examples, you will learn to implement various objectives effectively and discover why prioritizing pricing objectives is crucial for sustainable growth and profitability in retail.
You will also explore seven fundamental objectives of pricing strategies that every retailer should consider. Finally, you will get practical insights on selecting pricing objectives that fit your business needs.
What are the pricing objectives?
Pricing objectives are the specific goals or targets that guide a retailer's pricing strategy. In other words, they serve as a roadmap, outlining the desired results and the direction for everyday pricing decision-making.
The lack of clearly defined pricing objectives is the problem for many retailers, especially, ones that make their first steps in a particular segment or niche.
What some retailers want to do is just “sell items to customers” and gain profits. But that is neither a strategic vision, nor a pricing objective. Costco would never become what it is if its’ strategic ambition to be the leading low-cost retailer would not have been backed with the particular objectives within each product category or market segment.
This is why pricing objectives are essential in determining the overall pricing approach to maximize profits, increase market share, maintain competitiveness, or achieve other strategic goals.
Pricing goals vary widely, from maximizing short-term profits through price skimming to gaining long-term market share through penetration pricing. When determining price objectives in marketing, distinguish between the long-term and short-term ones.
The choice of pricing goals depends on various factors, including your strategic and tactical objectives, market segment or audience, and the competitive landscape.
Examples of pricing objectives
As you can see, pricing methods and strategies may encompass diverse goals. We will focus on the seven common pricing objectives, each serving a distinct purpose. Here they are:
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Profit maximization
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Financial sustainability
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Market penetration
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Sales volume boost
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Market share increase
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Generation of demand and interest in new product
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Crisis resistance reinforcement
Note that some of these pricing goals may contradict each other, so make sure that your pricing objectives are well-aligned and coherent, at least within a single product group or tier. Otherwise, if you want to sell as many items as possible while maximizing margins simultaneously, you can distract customers and lose their trust.
Why prioritize pricing objectives?
Setting pricing objectives helps align pricing strategies marketing with broader business goals, like market share increase by 15% or total revenue growth by 3%. For example, suppose your business mission implies providing customers with the best price-quality type. In that case, you have to set relevant pricing objectives, e.g., maximizing sales volume with prices lower than those of competitors.
Whatever your strategic goal, having well-defined pricing methods and strategies ensures that your everyday decisions are consistent, purposeful, and coherent. Therefore, prioritizing price objectives in marketing is essential for sustaining your business's overall financial health.
By prioritizing the proper objectives of pricing strategies, you can also ensure that pricing generates sufficient revenue to cover operation costs. Doing this is the key to remaining profitable in the long run because, with transparent pricing goals , you can make pricing decisions that will maintain your market positioning and reinforce customer retention.
7 pricing objectives your business should consider
Let's examine the common pricing objectives outlined above. To effectively select objectives of pricing in marketing management, you need to understand how each one works.
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Profit maximization. This pricing objective example involves setting prices at a level that maximizes profits. Finding the optimal price point often requires careful analysis of costs, demand elasticity, and competition.
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Financial sustainability. This objective ensures that pricing enables a business to cover costs, generate profits, and maintain stability over the long term. It involves considering cash flow, profitability, and risk management. Sustainable pricing often implies finding the right balance between margin-driven pricing and best-deal offerings within a portfolio.
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Market penetration. You can enter a new market or segment by offering lower prices than competitors. This pricing objective example aims to attract price-sensitive customers and gradually increase prices once you have loyal shoppers.
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Sales volume boost. You can rely on discounts, promotions, or bundling strategies to increase the number of items sold. The focus is on driving revenue through higher sales volume.
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Increase market share. The pricing objective example typically involves offering competitive prices, improving product quality, or enhancing customer service to attract shoppers previously unaware of your product or service.
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Demand generation. This goal is similar to market penetration, yet it is not identical. You can achieve the desired result through discounts, limited-time offers, or other pricing strategies marketing to provoke interest and create a sense of urgency among consumers.
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Crisis resistance reinforcement. If you want to overcome economic turmoils, it makes sense to maintain healthy margins, optimize costs, and ensure that your pricing across diverse channels and product groups supports sustainability.
How to choose the best pricing objectives for your business
By following the steps outlined below, you can choose pricing objectives in marketing management that are tailored to your needs while also securing different types of pricing strategies and long-term profitability:
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Assess strategic business goals. Begin by understanding your overall business objectives. Determine whether you aim to maximize profits, increase market share, penetrate new markets, or achieve other strategic goals. Make a multi-level portfolio analysis to specify the goals for each product group.
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Analyze your market. Thoroughly analyze your target market, including customer segments, competitors, and trends. Identify pricing strategies that align with competitive conditions and customer preferences. We recommend investigating the competition for each product group separately.
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Evaluate your competitive position. The third step is to assess your competitive position in the market. Within each product group, determine if your pricing goals in marketing involve gaining market share from competitors, maintaining your current position, or differentiating your offerings through pricing.
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Consider your cost structure. Once you've completed the competitive analysis, examine your cost structure to ensure your potential pricing objectives are financially viable. Determine whether your pricing strategy allows you to cover operational costs without undermining profits.
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Think of customer value perception. Consider how your target audience will perceive your pricing strategy. Determine whether your pricing aligns with the value customers place on your products or services.
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Select specific pricing objectives. Finally, select realistic and achievable objectives that align with your overall positioning, business goals, and external market conditions.
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Monitor and adjust. Remember to continuously monitor your pricing methods and strategies and be prepared to adjust them based on ever-changing market conditions, competitive pressures, or internal factors.
Manage pricing objectives with advanced tech
If you are a part of a large retail company selling hundreds or thousands of SKUs through multiple channels, you know how challenging it might get to manage pricing objectives. Sometimes, you must deal with different strategies and targets, even within a single product group. You may simultaneously manage dozens or even hundreds of pricing goals on the portfolio level. The task will be anything but trivial if you add the constantly changing pricing and non-pricing factors.
The good news is that advanced tech, like the Competera pricing platform, can make managing pricing objectives simple and smooth. You can start by setting pricing objectives on a campaign level by indicating the metric (e.g., sales volume or profit margin) to be grown and the one to be secured.
Then, you can set up diverse pricing goals for each product group or list of campaigns. The platform will notify you if some goals contradict each other and suggest corresponding changes. On top of that, the platform will provide you with regular analytical reports and forecasts on reaching particular objectives. Sounds simple, and that is.
Contact us to learn more about how Competera can help your business set the right objectives and select the most relevant tools to achieve them.
