A Different View on Pricing - From a South African Perspective

A business researching and developing a new product normally designs it first and the estimates the cost to determine the final price. If the cost - and the resulting price - are too high, the product will go back to the drawing board for more revisions, delaying the introduction of the new product.

The Japanese approach is to start with a target cost based on the price that consumers are most likely to accept; then the designers and manufacturers engineer the product to meet that target. The Japanese system focuses on pinning down the key cost elements of the product in the planning and design stage. This concept is central to the entire process because that is the point at which virtually all subsequent costs of the product are built in - from manufacturing to service. Careful planning and co-ordination in this phase means lower costs and better cost control further down the manufacturing pipeline.

The Japanese approach relies on a team of workers from a wide array of disciplines to bring a product to market. The team researches the market to come up with the products target price. From this crucial decision all else follows. After deducting the desired profit from the target sales price, the team of planners develops cost estimates for each element of the product. The team treats every part or function as a component and assigns each one a part of the target cost. This is where the battle begins. The Japanese use the word tataku, which means "to beat down," to describe the battle over costs with their suppliers. The battle is an intense negotiation process between the company and outside suppliers to push down costs to meet the overall target cost. Initially, the sum of the components' cost estimates may exceed the overall target cost, but by the time the battle is over, the team is usually within striking distance of the original target.

Andrew Smit - http://www.turtleherbestate.co.za where you will find Global solutions and ideas. Turtle Herb Estate Holdings consists of 3 forward thinking entrepreneurs with expertise in marketing & DTP advertising, farming culinary and medicinal herbs, web design and online marketing, horse breeding (sport horses),we embrace a holistic approach to entrepreneurship.Ameline Blog63413
Anjanette Blog83602