Target pricing is the process of estimating a competitive price in the marketplace and applying a firm’s standard profit margin to that price in order to arrive at the maximum cost that a new product can have.
A design team then tries to create a product with the requisite features within the pre-set cost constraint.
What do you mean by target costing?
It involves setting a target cost by subtracting a desired profit margin from a competitive market price. A target cost is the maximum amount of cost that can be incurred on a product, however, the firm can still earn the required profit margin from that product at a particular selling price.
What is target pricing strategy?
The target pricing strategy is the structure approach that determines the price at which a proposed product of a determined quality and functionality should be produced in order to yield the desired profits at the anticipated selling price.
What is a setting price?
Definition: Price Setting
Price is the amount of money charged for a product/service or Total sum value of exchange the consumer offers for using a product/service. High price will make the buyer to look for other options. On the other side low price might give an impression that the product might be of low quality.
Who uses target pricing?
Target cost is then given to the engineers and product designers, who use it as the maximum cost to be incurred for the materials and other resources needed to design and manufacture the product. It is their responsibility to create the product at or below its target cost.