Solution:

Objectives of Pricing Strategy:

• The firm's pricing strategy objectives must be identified to determine the optimal pricing in different market situations. Common objectives include the following:

• Current profit maximization -

• Seeks to maximize current profit, taking into account revenue and costs. Current profit maximization may not be the best objective if it results in lower long-term profits.

• Current revenue maximization -

• Seeks to maximize current revenue with no regard to profit margins. The underlying objective often is to maximize long-term profits by increasing market share and lowering costs.

• Maximize quantity -

• Seeks to maximize the number of units sold or the number of customers served to decrease long-term costs as predicted by the experience curve.

• Maximize profit margin -

• Attempts to maximize the unit profit margin, recognizing that quantities will be below.

• Quality leadership -

• Use price to signal high quality in an attempt to position the product as the quality leader.

• Partial cost recovery -

• An organization that has other revenue sources may seek only partial cost recovery.

• Survival -

• In situations such as market decline and overcapacity, the goal may be to select a price that will cover costs and permit the firm to remain in the market. In this case, survival may take a priority over profits, so this objective is considered temporary.

• Status quo -

• The firm may seek price stabilization to avoid price wars and maintain a moderate but stable level of profit.