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Chapter 10 Product, Price, and Place
Maximize Sales
Maximizing sales is a pricing objective based on selling a large
quantity of products at lower profit margins. A profit margin is the
amount by which revenue from sales exceeds the costs of making the
product and selling it. For example, if a product costs $10 to make and
sell and it is priced at $15, the profit margin is $5.
Another way to maximize sales is to offer volume pricing.
Volume pricing is when the list price is lowered based on the amount
purchased. In volume pricing, the price decreases as the volume
purchased increases. For example, the list price may be $25 each for
quantities of 100 or less, $20 each for quantities of 101 to 500, and $15
each for quantities over 500.
Maximize Profits
Maximizing profit per sale is a pricing objective that revolves
around fewer sales, but with increased profit margins. A business
charges the highest price a customer will pay before deciding that the
price exceeds the value. The high-end jewelry industry is an example
of where maximizing profit per sale is used as a pricing objective.
Increase Market Share
Market share is the percentage of the total sales in a given market
that one business conducts. All of the competing businesses account
for 100 percent of the market. Market share is determined by dividing
one company’s total revenue by the total revenue of the market. For
example, four advertising agencies in a town have combined revenue
of $4 million. If one of the agency’s revenue is $2 million, that agency
has a 50 percent market share. The goal of increasing market share
is to gain additional customers, which often means taking customers
from competitors. It can also mean attracting new customers into the
market.
Maximize Return on Sales
Return on sales (ROS) is a measure of a company’s profitability
and is equal to the net income divided by total sales. ROS reflects how
well a company has controlled costs. For example, if a business has a
net income of $10,000 from sales of $20,000, the ROS is 50 percent.
net income
= ROS
total sales
$10,000
= 50 percent
$20,000