Target Pricing Strategy - Brandly360 (2024)

FAQs

What pricing strategy does Target use? ›

Target believes that its stores have wide selections of items for every taste and their presence in almost every neighborhood brings convenience and comfort for their customers (Target Corporate, 2022). As for pricing, Target uses economies of scale, value and discount pricing tactics.

When it comes to setting prices for your products or services, there are four main strategies that you need to be aware of: premium, skimming, economy, and penetration. Depending on your specific situation, one (or a combination) of these strategies might make the most sense for your business.

Target costing example

The company needs to take in a profit margin of 10% of the selling price to meet its financial targets. Within these parameters, it can use the following target costing equation: Target profit margin = 10% of $10 or $1 per unit. Target cost = Selling price – Target profit margin ($10 - $1)

The target pricing method determines pricing based on a target profit margin. It is based on the costs of producing and delivering your product or service and what customers will pay for it. You first decide how much profit you need to make then set the price based on that.

Value pricing is perhaps the most important pricing strategy of all. This takes into account how beneficial, high-quality, and important your customers believe your products or services to be.

Cost Plus Pricing

In practice, most companies use this method by calculating the cost of production and determine the profit margin they want. To use this strategy, add a limited percentage to your product production costs.

The 3 C's of Pricing Strategy

Setting prices for your brand depends on three factors: your cost to offer the product to consumers, competitors' products and pricing, and the perceived value that consumers place on your brand and product vis-a-vis the cost.

For example, if a product has a production cost of $10 and the company wants to make a 20% profit on each sale, then it would set its target price at $12 ($10 + $2 = $12).

In target pricing, the selling price for a product is determined first. Based on the insights from the marketing department and other market intelligence data, the most competitive price that the customers would be willing to pay is fixed as a selling price.

What is a high-low pricing strategy? ›

High–low pricing (or hi–low pricing) is a type of pricing strategy adopted by companies, usually small and medium-sized retail firms, where a firm initially charges a high price for a product and later, when it has become less desirable, sells it at a discount or through clearance sales.

With demand-based pricing, marketers set the price that they think consumers will pay. Using target costing, they figure out how much consumers are willing to pay and then subtract a reasonable profit from this price to determine the amount that can be spent to make the product.

Prevents market losses

A good strategy allows you to set competitive pricing that your target group can afford. With a competitive pricing strategy, your customers will be less inclined to buy your competitors' products and services. Companies that implement the right strategy retain and increase their market share.