266 Chapter 10 Product, Price, and Place Copyright Goodheart-Willcox Co., Inc. Businesses set pricing objectives based on the pricing policies and short- and long-term financial goals for the company. The mission statement may also impact pricing objectives. For example, if the mission statement says the business is a price leader, that in part determines pricing objectives. Pricing objectives include maximizing sales, maximizing profits, increasing market share, maximizing return on sales, improving return on investment, and creating an image. Keep in mind that pricing objectives are moving targets and will be regularly revised. The price of a product must be at a level that encourages customers to purchase the product. It must also be at a level that generates enough profit for the business. 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. Goodheart-Willcox Publisher Figure 10-3. The effects of pricing on supply and demand. Supply and Demand Curve Quantity of goods 5 Price 0 $5.00 Demand Supply Equilibrium