- Profit maximization: According to economic theory, every business unit is guided by profit maximization. Thus, the objective of profit maximization has become the main pricing objectives of a firm. Similarly, profit has also become the measure of the success of the entrepreneur. Maximization of profits for the entire product line. Firms set a price, which would enhance the sale of the entire product line rather than yield a profit on one product only.
- Target return on investment: It may be the long-term objective of the firm. Under this, profits and costs objective are depended on standard volume and the margins added to standard costs and designed to produce the target profit rate in investment.
- Stabilize price: Stabilization of price may be the one of the pricing objectives. Stable price helps to forecast production, sales, use of inputs, investment etc. The stable price also attracts consumer’s interest and preferences for the product of the firm which increases profit of the firm.
- Determine price according to competitive condition: Adaptation of prices to bit the diverse competition situations faced by different products. Market competition relatively low price may be set to stimulate market growth and capture a large share thereof.
- Welfare of the firm in the long-term: Every business firm aims long term welfare of the firm. Promotion of the long-range welfare of the firm, i.e. discouraging the entry of competitors.
- Flexibility: Flexibility to vary prices to meet changes in economic conditions affecting the various consumer industries.
Major Pricing Objectives of a Firm
Pricing objectives are usually considered a part of the general strategy for achieving a broadly defined goal. The firm may aim at one or more of the following objectives. There are other objectives of the firm, which can be analyzed as follows:
There must be set the price of product according to consumer’s purchasing power and government policy.