Q:

What is demand-backward pricing?

A:

Quick Answer

According to businessdictionary.com, demand-backward pricing is a pricing method in which the actual costs of the product are deducted from what the consumer is willing to pay. If a satisfactory profit is still reached, the method can be considered successful.

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What is demand-backward pricing?
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Full Answer

As the name suggests, demand-backward pricing involves working backward. Producers estimate what they believe the consumer would be willing to pay and then adjust accordingly until the proper figure is reached. This method is especially popular in women's and children's shopping items, such as beauty products, clothes, shoes and toys. Items that are commonly gifted also fit this criterion, as the buyer will typically decide beforehand how much he or she is willing to spend.

Once the final price is reached, if wholesalers are not successful in selling the product, producers typically adjust not the price but the quality of the components. Therefore, the cost of the product is generally resistant to the effects of the market.

The pharmaceutical industry also engages in this method of pricing. Because the per-unit cost of drugs is typically much lower than the consumer price, the pharmaceutical industry makes incredible profit. People who need these drugs often have little choice but to pay the price.

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