Definition of Rate of Return Pricing
Rate of Return Pricing is defined as a pricing technique that is utilized by leaders in the market or monopolists regarding their brand or product. Marketers can start with a rate of return objective like 6% of Invested Capital or even 11% of Sales Revenue. Later, the marketers can arrange the structure of the price in order to achieve these target rates of return.
An unusual consequence of this Target Rate of Return Pricing Model is to keep the target rate of return as constant while the company will need to modify its price continuously as the level of demand keeps changing.
Textbooks on Rate of Return Pricing
Since marketers utilize the pricing technique of the Rate of Return Pricing with leadership skills, it becomes necessary for potential marketers to go through textbooks written on this topic. Here are some details of relevant textbooks based on this crucial pricing technique:
- Microeconomics: A Modern Approach by Andrew Schotter (Published by Cengage Learning – Year 2008).
- Political Economy for the 21st Century: Contemporary Views on the Trend of Economics by Charles J. Whalen (Published by M. E. Sharpe – Year 1996).
Examples of Rate of Return Pricing
Example 1: An interesting example of Target Rate of Return Pricing can be its utilization by market leaders. Such brands or individuals are entities that manufacture products or provide services that nobody else provides to the consumers as per their quality. These people claim and even turn out to be successful in providing qualitative products or services that are far better than those designed by their competitors. Thus, they are in a comfortable position to practice the Target Rate of Return Pricing technique.
Example 2: Another interesting example of Target Rate of Return Pricing can be its utilization by monopolists. They are such brands or individuals who are the only players specialized to provide certain kinds of products or services to consumers in the market. They do not face any competitors within the market so practicing the Target Rate of Return Pricing becomes much easier for them.
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