DECADECA Travel and Tourism Practice Exam

What pricing strategy involves adding a standard markup to the cost of a product?

1. Value-Based Pricing

2. Cost-Plus Pricing

3. Dynamic Pricing

4. Competitive Pricing

The correct answer is: Cost-Plus Pricing

Cost-Plus Pricing is a strategy where a seller calculates the total cost of producing a product and then adds a standard markup to determine the selling price. This method ensures that all costs are covered, including both fixed and variable expenses, while also providing a profit margin. This approach simplifies pricing decisions since it relies on easily quantifiable data—namely, the costs associated with the product—and ensures consistency in pricing across similar items. Value-Based Pricing, on the other hand, sets prices primarily based on the perceived value to the customer rather than the actual cost of production. Dynamic Pricing involves changing prices based on market demand and competition, while Competitive Pricing involves setting prices based on competitors’ pricing strategies rather than on the costs associated with the product. Thus, Cost-Plus Pricing stands out for its straightforward approach of directly attaching a markup to costs.