DECA Sports and Entertainment Marketing Practice Exam

What pricing strategy involves calculating all costs and expenses and then adding a desired profit?

1. Cost plus pricing

2. Value-based pricing

3. Dynamic pricing

4. Penetration pricing

The correct answer is: Cost plus pricing

The pricing strategy that involves calculating all costs and expenses before adding a desired profit is known as cost plus pricing. This method ensures that a business covers all its associated costs, such as production, labor, and overhead, and subsequently sets a price that incorporates a specific profit margin. Cost plus pricing is particularly straightforward and provides a clear rationale for price setting, as it is rooted in tangible expenses. It is often used in manufacturing and service industries where costs can be directly tracked and calculated. By using this approach, businesses can maintain profitability while providing consistent pricing based on their cost structure. In contrast, value-based pricing focuses on the perceived value of a product or service to the customer rather than solely on the costs incurred. Dynamic pricing adjusts prices in real-time based on demand and supply fluctuations, while penetration pricing involves setting a low price initially to attract customers and establish market share. These strategies prioritize different aspects of the pricing decision process, distinguishing them from the cost plus model.