A Cost Plus

A Cost Plus

Cost Plus

Learn why it’s more cost effective to sell a product at its cost rather than at a markup. Some people think this is risky, but new research shows that business owners can reduce the risk and gain more profits.


Based in Alameda, Cost Plus World Market has a network of about 245 brick-and-mortar stores nationwide, including 18 in the Greater Los Angeles region, as well as an online presence. The deal also includes a pair of distribution sites and an office. Cost Plus World Market specializes in selling home products such as furniture, décor, rugs, apparel, and food and drink products sourced worldwide.

"I have been a fan of World Market for many years," said Smith, the newly appointed executive chairman of Cost Plus. "The company's combination of consumables, home furnishing, and décor gives it a unique niche in very large addressable markets. I'm looking forward to working with the team to extend the brand's reach and expand market share." (Source: spectrumnews1.com)


Therefore, cost-plus pricing can offer competitive stability, decreasing the risk of price competition (such as price wars), if all companies adopt cost-plus pricing. The strategy enables price changes to goods and services relative to increases or decreases in the product cost which are simple to communicate and justify to customers.

Cost-plus pricing is not common in markets that are (nearly) perfectly competitive, for which prices and output are such that marginal cost (the cost of producing an additional unit) equals marginal revenue. In the long run, marginal and average costs (as for cost-plus) tend to converge, reducing the difference between the two strategies. It works well when a business is in need of short-term finance. (Source: en.wikipedia.org)


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