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Price, along with product, place, and promotion, are the variables that the marketing manager controls. Pricing is extremely important since it so directly affects an organization`s sales and profits. Naturally, profit objectives will guide pricing decisions. The marketing manager has to decide whether to maximize profits or establish a target return. A particular target might be a certain percentage return on sales or a certain percentage return on investment or, for a small family operation, the return might be a fixed dollar amount of profit to cover overhead and living expenses. With any objective, the time factor is crucial. What is an appropriate objective for the short-term may not be for the long-term and vice-versa.

Marketers are concerned with all the factors affecting price, in order to keep their products from faring poorly in a widely variable atmosphere. Even in service areas such as passenger fares and freight rates, where detailed prices are printed and distributed, influences may cause fluctuation. The marketing manager knows that the costs of the separate elements of the marketing mix can be recovered by proper pricing. The cost of the product itself—the promotion and selling associated with it, the distribution expenses, and profit — are all directly related to price. Thus price knits together the elements of the marketing mix and pays for their respective contributions. The marketing manager must analyze and reconcile the various elements of those variables which influence price, and must then decide on an optimal price policy.

The most fundamental part of any marketing analysis is the recognition of the competitive structure of the industry. Where there are many competitors offering the same type of product, price competition will be active. When there are great numbers of similar offerings, products tend to lose their individuality. Then differentiation becomes difficult, and marketers have little discretionary power to influence prices. It is in this circumstance that marketers and merchants alike look to sales techniques. Disposing of goods at reduced prices draws attention to the specific brand, in the hope that customers will continue to buy when prices return to "normal."

Proper pricing can …