Proceedings

Which are the final purposes of the producer?
� Future prices;
� What does the produces want to achieve taking into consideration the quantity
of products that reached the market, the life of these products and market
share;
� The necessary time in order to enter on the market with a new product.
This presentation of strategy, on steps, shows that the process of determining the
target cost should be included in the strategic plan of the producer over several years.
Target pricing is always uncertain, considering how the market evolves, how does the
competition react and the monetary relations. In the event that the assumptions about
the planning are changed, this can have a high impact and effects over future market
prices.
Example 1:
ALFA enterprise studies the project of a new microwaves oven. The sales for this
product were predicted for a period of five years; after this period the pressure from
the competition and the technical innovations will force the enterprise to change this
product with a modern one.
A study made by the enterprise shows that the price could be set at 1500 ron for the
first three years. This price is relatively high, but the device will have a modern
design, which proposes advantage over competitors who have older models. Starting
with the forth year, the price will be adjusted to 1300 ron in order to resist to the
competitor’s new products. Sales forecast are as follows: 4000 units in the first three
years, 2000 units for year four and five.
Table 1. Turnover forecast for five years
Explanations Year 1 Year 2 Year 3 Year 4 Year 5 Total
Quantity 4,000 4,000 4,000 2,000 2,000 16,000
Price of 1,500 1,500 1,500 1,300 1,300
Turnover 6,000 6,000 6,000 2,600 2,600 23,200
Average selling price target is = 23,200,000 = 1,450 lei/unit
16,000
The latest concern to management is to determine the level and the structure of the
cost of a product that it can afford. Often it has to give up the previous fabrication
prescriptions in order to reach the new cost structures and level. Global target prices,
along with the others predictions, must be included both in the planning of the current
and future years in order to:
� offer security to the product profitability,
� establish the maximum value that the price of the product can reach
� motivate this maximum value
Stage II. Estimated profit margin target
This stage results from the strategic middle-term planning of the firm and from its
portfolio of products.
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