( (2a) In an open market, companies must price their products based on the price

Question

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(2a) In an open market, companies must price their products based on the prices the market will bear. If a company overprices their merchandise, it is likely that no one will buy it. One market-based approach to pricing is the Target Pricing method discussed on pages 523-525 of your textbook.

Please respond to all of the following prompts:

For this discussion, you will be acting as a manager for a major manufacturing corporation. Please select one of the companies listed below for your scenario:

Proctor & Gamble

General Mills

Nike

General Motors

Assume that the company you have selected is bringing a new product to market. You have been tasked with the responsibility of target pricing and target costing this new product. In your main response posting, you must do the following:

State the company you have chosen and explain the "pretend" new product.

Walk through the five-step process shown on pages 523-525. Explain how you're going to address each step of the target pricing and target costing method based on the scenario you have chosen.

Explanation / Answer

choose a company as you like for example I am taking Nike, they want to introduce a new shoe , there are many competitors like addidas, puma, reebok etc..,

the success of product depends on the demand and price of the product driven by targeted profit.

For Eg. the product can not be priced more than 100, ( based on the information in market and competitors pricing)

my targeted profit say    20, ( I need achieve 20% return on capital,intrest rates etc)

my targeted cost has to be                                80 ( if actual production cost is more than 80, say for eg 90.

steps has to be taken to reduce the cost of production , by cost reduction methods.

so , in target costing , we start from Pricing of the product ,

step 2. our targeted margin in order to survive in the market ..,  

step 3. target costing = price fixed - target margin.,

with in the constrain of traget costing i.,e the cost of production has to equal to or less than targeted cost.

so start from the consumer point of pricing and our required profit margin, as opposed to regular cost methods ( traditional)

starting with cost of production , than adding required margin to cost of production , we get pricing the product.,but there may good chances the product may not succeed unless the product enjoys monopoly ( unelastic demand) i.e product will not change to change in price.

in competitive market , target costing helps to price in line with the competitors product or in some cases less than competitors to succeed in market at the same time maintaining the required rate of profit margin.

4. setting Target cost by taking in to consideration information and conditions, preparing the budgets checking for the variances if any taking corrective and preventive actions to maintain or achieve the targeted cost of production.

5.this approach requires continuous cost reduction and improvements , by using cost reduction techniques and methods like value engineering, acitivity based costing, value analysis, Back flush costiong, just in time of materials, material requisition planning, etc..,

6. continous improvement like increasing productivity and reducing the expenditure .

7. Avoiding or minimising wasteage etc

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