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Target Pricing

 

DisciplinesMarketing > Pricing > Target Pricing

Description | Example | Discussion | See also

 

Description

Set your prices based on a particular target rather than more variable methods. Ways of setting targets include:

  • Price break points where significant additional sales may be achieved.
  • Targets based on desired sales or profit.
  • Targets that use market and competitive information.

When you have a target price before you produce your product, you can then manage the costs of development, manufacture, marketing, sales and distribution, such that you can still make a profit.

Example

A retailer knows they will sell a lot more of an item if it is priced at 99 rather than 101 and above. They use this as a critical communication with suppliers.

A marketing manager sets a target price based on competitor product pricing. The R&D group then design to that price constraint.

Discussion

If you start by building a product to a desired specification, you may end up with something that is too expensive for its target market. It is better to start by researching the market and determining what they are prepared to pay, and then to build a product to that target price.

Customers are often affected by significant number boundaries that mostly come from our numeric system that is based on our two hands and which counts in tens. In particular, when we go from one to two to three digits, things seem particularly more. Boundaries in pricing may well also be based on the price that market leaders charge and a perceived band of low-to-high pricing. Of course the quality of the product and reputation of the brand are important, yet raw price seldom completely goes away and is often a limiting factor.

See also

Price-point Pricing

 

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