Answer (D) is correct . Target pricing and costing may result in a competitive advantage because it is a customer-oriented approach that focuses on what products can be sold at what prices. It is also advantageous because it emphasizes control of costs prior to their being locked in during the early links in the value chain. The company sets a target price for a potential product reflecting what it believes consumers will pay and competitors will do. After subtracting the desired profit margin, the long-run target cost is known. If current costs are too high to allow an acceptable profit, cost-cutting measures are implemented or the product is abandoned. The assumption is that the target price is a constraint.
Answer (A) is incorrect because Target pricing is used on products that have not yet been developed.
Answer (B) is incorrect because Target pricing considers all costs in the value chain.
Answer (C) is incorrect because Target pricing can be used in any situation, but it is most likely to succeed when costs can be well controlled.
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