Target pricing: a marketing management tool for pricing new cars

ISSN： 0968-4905

Source： Pricing Strategy and Practice, Vol.5, Iss.2, 1997-02, pp. : 61-69

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Abstract

Over the past 15 years, many UK car manufacturers have learned that quality must be designed into cars before they are manufactured - it is expensive, if not misguided, to create quality by inspection after the car has left the production line. Examines the rigorous cost management technique which helps prevent senior managers from launching low-margin cars which do not generate enough returns on investment. Finds that most UK-based car manufacturers employ the logic of target costing as a marketing management tool to determine the prices of new car models. Suggests that before a new car is launched, senior managers must determine its ideal selling price, establish the feasibility of meeting that price, and then control costs to ensure that the set price is met. Reports the conclusive evidence that when target costing works well, quantifiable hurdles are established in a transparent process, and senior managers are more likely to commit themselves to what the statistical numbers show.