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Book 4 Unit 2 Pricing Factors that affect pricing decisions A company’s pricing decisions are influenced by a variety of internal and external factors. The firm’s marketing objectives and costs provide objectives are: To achieve a certain overall profit target To increase sales To get a bigger share of the market To achieve high profits on a particular product To discourage competition To promote a particular product image To accomplish social or ethical goals Sometimes several objectives are pursued simultaneously. A major goal for most companies is to reach overall profit targets. To measure their success on hitting those targets, most companies calculate their return on investment (ROI), which is profit expressed as capital investment. In addition to its general pricing policy, a company may also have specific objectives for individual products. It may want to maximize sales or gain market share. It may want to achieve high returns on each unit sold, although this objective may conflict with the desire to build sales volume, because the price required to earn a high return may be so high that it discourages customers. Other objectives might relate to the competitive environment. To eliminate competition or discourage new companies from becoming competitors, a company might charge an extremely low price for its product. Later, when the company has established control of the market, it might then raise the price to improve its own profits. Some pricing decisions are based on a desire to achieve a particular image or reputation. Rolex Watches, for example, are priced at a premium partly to convey the message that they are superior products and partly to cover the higher costs associated with high-quality materials. An organization’s pricing objective might also be related to public relations or to social and ethical considerations. Many hospitals adjust their prices to accommodate people who are unable to pay the full rate. Often a company’