Profit-Oriented Pricing Objectives
- Return on Investment (ROI)
ROI is the amount of profit a firm hopes to make from their investment. Often firms set a certain ROI percentage amouhnt, which it hopes will be earned over a product’s launch year. For example, if I were to invest $20,000 into a Silicon Valley start-up at 10% expected ROI, I would hope to see $2,000 in profits a year after the start-up’s product was launched.
- Maximizing Profits
When a firm cuts costs or encourages customer loyalty (especially during a weaker economy), they help to maximize their profits with such methods. Tanner & Raymond (2010, p.301) describe how firms cut back on advertising expenses, and Dell, Inc., for example, decided to cut jobs in order to maximize …show more content…
This objective is not a long-term option because it is not a profit-making strategy.
- Maximizing Market Share
Sometimes firms decide that making less profit is more important than capturing less market share than their competitors. I imagine Starbucks has this way of thinking because there seems to be one situated every couple of blocks in San Jose, California. Furthermore, competitors like Peet’s (a local San Francisco firm) hardly get a look in! This tactic, in turn, could mean Peet’s also has to maximize market share in a similar way if possible, or they may risk going out of business. Luckily for Peet’s, I know many friends who dislike the taste of Starbucks coffee.
What factors do organizations consider when making pricing decisions?
An Offering’s Costs
So many costs behind a product to consider, including; fixed costs like warehouse/factory/office rent, insurance, as well as variable costs like labor, and raw materials. Furthermore, promotion and distribution costs must be taken into account. The idea is for total revenue to exceed total costs, which should be above the breakeven point …show more content…
I have experienced several stores offering the same price for a product as competitors, and they have given me the difference back to me in cash. This way, a store is making repeat custom a priority.
A weaker economy can force a firm to lower prices. Reasons can be because unemployment rates are higher, mortgage interest rates could be cutting into wages, or people could just want to cut back on their spending.
Government laws and regulations also play a part. Firms must abide by the Robinson-Patman Act, which stops firms charging “different customers different prices for the same products” (Tanner & Raymond, 2010, p.304). Cinemas offer matinee, child and senior citizen special prices, which is allowed as long as it is indeed, for all customers who fall into those categories.
I am happy to read that price fixing is illegal, especially because I am certain I was a ripped-off customer of airline companies’, Virgin Atlantic and British Airways, price fixing
- Return on Investment (ROI)
ROI is the amount of profit a firm hopes to make from their investment. Often firms set a certain ROI percentage amouhnt, which it hopes will be earned over a product’s launch year. For example, if I were to invest $20,000 into a Silicon Valley start-up at 10% expected ROI, I would hope to see $2,000 in profits a year after the start-up’s product was launched.
- Maximizing Profits
When a firm cuts costs or encourages customer loyalty (especially during a weaker economy), they help to maximize their profits with such methods. Tanner & Raymond (2010, p.301) describe how firms cut back on advertising expenses, and Dell, Inc., for example, decided to cut jobs in order to maximize …show more content…
This objective is not a long-term option because it is not a profit-making strategy.
- Maximizing Market Share
Sometimes firms decide that making less profit is more important than capturing less market share than their competitors. I imagine Starbucks has this way of thinking because there seems to be one situated every couple of blocks in San Jose, California. Furthermore, competitors like Peet’s (a local San Francisco firm) hardly get a look in! This tactic, in turn, could mean Peet’s also has to maximize market share in a similar way if possible, or they may risk going out of business. Luckily for Peet’s, I know many friends who dislike the taste of Starbucks coffee.
What factors do organizations consider when making pricing decisions?
An Offering’s Costs
So many costs behind a product to consider, including; fixed costs like warehouse/factory/office rent, insurance, as well as variable costs like labor, and raw materials. Furthermore, promotion and distribution costs must be taken into account. The idea is for total revenue to exceed total costs, which should be above the breakeven point …show more content…
I have experienced several stores offering the same price for a product as competitors, and they have given me the difference back to me in cash. This way, a store is making repeat custom a priority.
A weaker economy can force a firm to lower prices. Reasons can be because unemployment rates are higher, mortgage interest rates could be cutting into wages, or people could just want to cut back on their spending.
Government laws and regulations also play a part. Firms must abide by the Robinson-Patman Act, which stops firms charging “different customers different prices for the same products” (Tanner & Raymond, 2010, p.304). Cinemas offer matinee, child and senior citizen special prices, which is allowed as long as it is indeed, for all customers who fall into those categories.
I am happy to read that price fixing is illegal, especially because I am certain I was a ripped-off customer of airline companies’, Virgin Atlantic and British Airways, price fixing