Question

Capital-intensive industries and businesses tend to utilize which type of pricing methodology? A. Target pricing B. Return on investment C. Markup pricing D. Prestige pricing

Answer 1

• Target pricing is a method in which the maximum cost to manufacture a product is calculated by subtracting the profit margin form the selling price, that target costs then freezed which act as a target or the manufacturers to manufacture the product is equal or lesser price than target cost.
• Return on investment indicates the percentage of product that would be achieved by investing in a certain product or service i.e. what are the expected pay backs if we invest in a particular product or service.
• Markup pricing: is the increased price of a product when profit margin is added to the product i.e. selling price is the sum of cost incurred I manufacturing a product plus the profit margin of the organization.
• Prestige pricing: is a method in which a product is shown of better quality by increasing the selling price of that product, people think that higher the price better the quality.

Hence capital intensive businesses utilize prestige pricing to ensure that a better image of the product is made in the minds of people.