Rate of return pricing (original) (raw)

Rate of return pricing or Target-return pricing is a method of which a company will set the price of its product based on their desired returns on said product. This method is used primarily by companies that either have a lot of capital or have a monopoly on the market and when an investor requests a specific return on their investment. In a competitive market this method is not as strong due to its focus being aimed at the final profit margins. If a competitor is able to set a lower price, it could prevent the product from being bought and reaching the desired profit margin.