Target costing

A method of pricing that is used frequently by the Japanese firms. In this system, marketing research is used to establish a new product’s desired functions. Then a price is determined at which a product will sell given its apparent competitors’ prices. Then, the desired profit margin is deducted from this price. Thus, this leaves the target cost the company must achieve. Pricing that starts with an ideal selling price, and then targets costs that will ensure that the price is met.