Measuring Marketing

Chapter 42 Target Return Pricing

Measurement Need

When the company’s investment decisions are dictated by target rates of return, marketers must determine the best price for a given product.

Solutioni

Target return price is designed to cover all costs and yield a specified or target return. Like mark-up pricing (Chapter 41), target return pricing is another cost-based approach.

$TRP=\frac{C_{pu}+R\times I}{S_u}$

Where

TRP = target return price

Cpu = cost per unit

R = expected return

I = capital invested

Su = unit sales

Let’s assume that a new athletic company, called All Goal, competing only in football (soccer) shoes, decides to launch a new product to compete against Adidas and Nike. Sales are expected to be 100,000 units in the first year, ...