Pricing decisions and business aims

A pricing decision is a choice about how much to charge for a product. The price must help the enterprise achieve its aims and appeal to its target market — the group of customers it is aiming at. Price is never just a number: it sends a message about the product, helps decide whether customers buy, and affects whether the business makes a profit.

Supporting the aims

Every enterprise has aims — what it is trying to achieve, such as building a premium image, growing quickly to win market share, surviving its first year or making a healthy profit. The price has to point in the same direction as the aim. A start-up selling scented candles in gift boxes that wants a premium image cannot charge £1.50 a candle: many customers judge quality by price, and a gift that looks cheap wins few buyers. The same business aiming to be seen as good value by teenagers buying presents for friends would need a price they see as affordable. Neither price is wrong on its own — each suits a different aim and a different target market.

Attracting and keeping customers

A suitable price attracts customers in the first place and keeps them coming back. Customers who feel they paid more than a product was worth do not return, and they tell their friends. A price that feels like fair value builds repeat custom, which matters most to a new enterprise with only a handful of customers to its name.

Still making a profit

The price must also be high enough to cover costs and leave a profit. A price that delights customers but sits below the cost of production loses money on every sale, so the business cannot survive however popular it becomes. Set the price too high, though, and few customers buy, so the profit on each sale is large but total profit may be small.

A pricing decision is therefore a balancing act: what the target market will happily pay, so the enterprise attracts and keeps customers, against what it needs to earn to meet its aims and make a profit.