Step 1: Examine Objectives

As we discussed in the Pricing Decisions Tutorial, marketing decisions including price are driven by the objectives set by the management of the organization. These objectives come at two levels. First, the overall objectives of the company guide all decisions for all functional areas (e.g., marketing, production, human resources, finance, etc.). Guided by these objectives the marketing department will set its own objectives which may include return on investment, cash flow, market share and maximize profits to name a few.

Pricing decisions like all other marketing decisions will be used to help the department meet its objectives. For instance, if the marketing objective is to build market share it is likely the marketer will set the product price at a level that is at or below the price of similar products offered by competitors.

Also, the price setting process looks to whether the decisions made are in line with the decisions made for the other marketing decisions (i.e., target market, product, distribution, promotion). Thus, if a company with a strong brand name targets high-end consumers with a high quality, full-featured product, the pricing decision would follow the marketer’s desire to have the product be considered a high-end product. In this case the price would be set high relative to competitors’ products that do not offer as many features or do not have an equally strong brand name.

Steps in the Price Setting Process
Step 2: Determine an Initial Price