Answer:
target return pricing
Explanation:
Target return pricing is a pricing method that uses a very simple formula:
- target price = [unit cost + (desired return x capital)] /unit sales
The price is based on the ROI that the company expects from a certain product (or project).
Even though this is a fairly simple method for pricing a good or service, it can also have serious negative consequences:
- it doesn't take in account consumers' tastes or preferences
- what happens if the expected ROI is too high, that could kill a project that could have been successful otherwise
- the time frames are not always exact, e.g. you believed that a project would last 5 years, but due to a technological breakthrough it only lasts 4
In order to successfully apply this type of pricing strategy, a company must be able to achieve or exceed their sales goals.
