The strategy of first determining what the market is willing to pay, then subtracting a desired profit margin to determine a desired cost of production is called
A) cost-based pricing.
B) target costing.
C) penetration pricing.
D) skimming pricing.

Question

Quizplus · Accepted Answer

Demand-based pricing is very different from cost-based pricing. It makes cost an input to the product development process rather than an outcome of it. This "backward engineering" strategy determines the targeted cost of production by subtracting the firm's desired profit margin from their intended selling price. A product is then designed to satisfy consumers and meet the target cost.

The Strategy of First Determining What the Market Is Willing