Target Price (Sales and Manufacturing)
is the price at which a seller projects that a buyer will buy a product. This projection is reached by market research and calculating the cost to market of the product. In turn, the target price may be used to calculate the target cost for a product.
The easiest measure of target price is to compare the product with similar products of its kind. Sometimes, these may be products sold by the competitor. If one's product is unique in the market, one must rely on market research or even entrepreneurial instincts to determine the target price.
In manufacturing, the target price may be used to calculate the target cost. This is the maximum cost that the seller is willing to pay to have the product manufactured. When the actual cost of manufacturing increases beyond the target cost, it may no longer be profitable for the seller to sell the product. Simply increasing the sales price to cover for the increase in overhead would increase the actual sales price over the intended target price. This may cause lower sales than expected, leading to a loss larger than the increase in overhead.
The target price for any product should be reviewed periodically, as market conditions change. Inflation plays a key role as time progresses. As the cost of fuel and labor increase, the manufacturer may not be able to meet the target cost. The seller, if he/she wishes to continue the sales of the product, must increase the sales price to reflect the higher cost to market. But, as the cost of living increases, consumers may be more or less willing to purchase the same product at a price higher than the initial target price. In order to downplay the price increase to the consumers, sellers and manufacturers may utilize transition tactics such as redesigning, resizing, repackaging, and reviving.
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