In the entire marketing mix, price is the one element that produces revenue; the

others produce costs. Price is also one of the most flexible elements: It can be changed
quickly, unlike product features and channel commitments.

The most common mistakes are these:

 Pricing is too cost-oriented;
 price is not revised often enough to capitalize on market changes;
 price is set independent of the rest of the marketing mix rather than as an intrinsic element of market-
positioning strategy; and
 price is not varied enough for different product items, market segments, and purchase occasions.

Nine Price-Quality Strategies

In setting a product’s price, marketers follow a six-step procedure:

(1) selecting the pricing objective;
(2) determining demand;
(3) estimating costs;
(4) analysing competitors’ costs, prices, and offers;
(5) selecting a pricing method; and
(6) selecting the final price.

Step 1: Selecting the Pricing Objective

A company can pursue any of five major objectives through pricing:
➤ Survival. This is a short-term objective that is appropriate only for companies that
are plagued with overcapacity, intense competition, or changing consumer wants. As
long as prices cover variable costs and some fixed costs, the company will be able to
remain in business.
➤ Maximum current profit. To maximize current profits, companies estimate the
demand and costs associated with alternative prices and then choose the price that
produces maximum current profit, cash flow, or return on investment. However, by
emphasizing current profits, the company may sacrifice long-run performance by
ignoring the effects of other marketing-mix variables, competitors’ reactions, and
legal restraints on price.
➤ Maximum market share. Firms such as Texas Instruments choose this objective
because they believe that higher sales volume will lead to lower unit costs and
higher long-run profit. With this market-penetration pricing, the firms set the lowest
price, assuming the market is price sensitive. This is appropriate when (1) the
market is highly price sensitive, so a low price stimulates market growth;
(2) production and distribution costs fall with accumulated production experience;
and (3) a low price discourages competition.
➤ Maximum market skimming. Many companies favor setting high prices to “skim” the
market. This objective makes sense under the following conditions: (1) A sufficient
number of buyers have a high current demand; (2) the unit costs of producing a
small volume are not so high that they cancel the advantage of charging what the
traffic will bear; (3) the high initial price does not attract more competitors to the
market; and (4) the high price communicates the image of a superior product.
➤ Product-quality leadership. Companies such as Maytag that aim to be product-quality
leaders will offer premium products at premium prices. Because they offer top
quality plus innovative features that deliver wanted benefits, these firms can charge
more. Maytag can charge $800 for its European-style washers—double what most
other washers cost—because, as its ads point out, the appliances use less water and
electricity and prolong the life of clothing by being less abrasive. Here, Maytag’s
strategy is to encourage buyers to trade up to new models before their existing
appliances wear out.