Which pricing approach considers the costs of production plus a fair return on investment?

The pricing approach that focuses on the costs of production along with a fair return on investment is known as cost-based pricing. This method involves calculating the total cost of producing a product, which includes both fixed and variable costs, and then adding a markup percentage to ensure a profit margin is achieved.

By adhering to this strategy, businesses can ensure that all production costs are covered while also making a reasonable profit. This approach is particularly effective in environments where the company has a good grasp of its costs and needs a straightforward method that aligns pricing directly with these expenses.

In contrast, market-based pricing tends to be influenced primarily by prevailing market rates and competitor pricing rather than the intrinsic costs of production. Competition-based pricing focuses on setting prices based on competitors' pricing strategies rather than reflecting the specific costs incurred. Finally, consumer value pricing is driven by the perceived value of the product in the eyes of the customer rather than the actual costs to produce it. Each of these alternatives operates on different principles, which is why cost-based pricing is distinctly characterized by its focus on costs and returns.