Target Pricing

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What is Target Pricing?

Target Pricing is a mechanism wherein prices are set based on market penetration or price points rather than building from standard cost.

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.

Formula for Target Pricing

The target pricing formula is:

Target Price = Target Cost + Desired Profit

or

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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Compare with: Penetration Pricing  |  Competitive Pricing  |  Cost-plus Pricing  |  Standard Cost Pricing  |  Marginal Cost Pricing  |  Price Skimming  |  Perceived Value Pricing  |  Psychological Pricing  |  Promotional Pricing  |  Discount Pricing

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