Marketing Glossary

Pricing Objectives

As we all know, Price is an important part of the marketing mix which represents the financial aspect. It is “the amount of money charged for a product or a service, or the sum of the values that customers exchange for the benefits of having or using the product or service” (Armstrong & Kotler, 2015, p. 354).

Being able to survive in a highly competitive market companies need to set specific, measurable goals and just like the in other phases of the 4P’s, the first thing we need to do is come up with the pricing objectives or goals to achieve. It is certainly essential that these objectives are set in conjunction with marketing strategy (Lancaster & Reynolds, 2005).

Setting prices is an important element in a company’s strategy, and to make those strategic decisions about pricing is it key to know what are the objectives to reach. The sum of all marketing objectives must take us closer to the company’s goals.

There are 6 major objectives are: survival, status quo, maximum current profit, maximum market share, maximum market skimming, and product-quality leadership. (Kotler & Keller, 2012)

• Survival: it’s used to keep company’s afloat and they are meant to be used on a short-term or temporary basis. When the situation that initiated the survival objective has passed the prices should return to previous ones or more appropriate levels. (The Pennsylvania State University, 2007).
• Maximum current Profit: are meant to maximize profits. Companies “estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow, or rate of return on investment.” (Kotler & Keller, 2012)
• Maximum Market Share: are meant to increase or maintain market share. Companies believe a higher sales volume will lead to lower unit costs and higher long-run profit. They set the lowest price, assuming the market is price sensitive. (Kotler & Keller, 2012)
• Maximum Market Skimming: is when prices start high and slowly drop over time (Kotler & Keller, 2012).
• Status Quo: these goals are mean to seek price stabilization to avoid pricing wars with the competition and/or maintain a stable level or profit. (NetMBA, 2010)
• Product Quality: it’s used when the product has more expensive components and it’s perceived as a high quality product (Kotler & Keller, 2012).

You can aspire to increase market share, to set prices to deter competitors to enter the market, expect to maximize profits in the short them hoping to perform long-term benefits; you can set low prices or equal to the competition to get new customer or gain experience. You can even have a loss leader which is “a product or service at a price that is not profitable for the sake of offering another product/service at a greater profit or to attract new customers.” (Investopedia, 2015). Whatever the goal, the organizations that use the price as a strategic tool will benefit more than those who simply let the market determine the cost or price (Kotler & Keller, 2012).

Maslow’s Hierarchy of Needs

This is a psychological model of human motivation developed by Abraham Maslow, in which he assumes the human needs are ordered in a hierarchy, represented as a pyramid with the most basic needs at the bottom and the most distinctively human needs at the top (Chandler & Munday, 2011).

The pyramid starts from the bottom and it’s divided into five needs. “The lower-order ‘deficiency needs’ (1 to 3) have to be met before the higher-order ‘growth’ needs (4 and 5) can be satisfied.” (Heery & Noon, 2008). We will only pay attention to the highest needs when the basic needs have been satisfied.

1. Physiological Needs are the ones that help us survive (e.g., breathing, sleeping, eating). “The human being who is missing everything in life in an extreme fashion, it is most likely that the major motivation would be the physiological needs rather than any others.” (Maslow, 1987).
2. Safety Need is the desire of people to have stability, order and predictability in their lives (Carducci, 2009) (e.g. physical safety, family safety, resources like job and money safety).
3. Belonging Needs create desire to be affiliated with other in a meaningful way. (Carducci, 2009) (e.g. love, friendship, and intimacy).
4. Esteem Needs  create desire for self-respect and respect of others (Carducci, 2009) (e.g. success, respect, acknowledgment, and trust).
5. Self-Actualization needs motivates people to express significant aspects of their self to the fullest extent. (Carducci, 2009) (e.g. self-fulfillment, personal growth and peak experiences).

In Marketing, we can focus a campaign in one of the five areas of needs, if we know the target market and what are their motivation to purchase we might get a better understanding of what’s inside a customer’s mind. “A motivated person is ready to act” (Armstrong & Kotler, 2015, p. 209).

As an example, let’s choose clothing to illustrate each need.

• In the physiological need we might look at goodwill or second hand clothing. We just need cheap shoes and clothes to keep us warm.
• In the Safety Need we might go shopping for more trendy clothing.
• In the Belonging Need we might go out with our friends for a shipping spree.
• In the Esteem Need we might purchase clothes that look great on us.
• In the self-actualization we might purchase high-end brands to feel successful.

Depending on the brand and type of customers we can then choose an appropriate campaign message.

Bibliography

Armstrong, G., & Kotler, P. (2015). Marketing an Introduction (5th Edition ed.). Toronto: Pearson Canada.