More Explanation on Target Pricing

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More Explanation on Target Pricing
Manik Sood, Manager, India

It is a pricing method that involves:
(1) Identifying the price at which a product will be competitive in the marketplace
(2) Defining the desired profit to be made on the product, and
(3) Computing the target cost for the product by subtracting the desired profit from the competitive market price. The formula:
Target Price - Desired Profit = Target Cost
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.



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