Page 262 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 14: Introduction to Recent Development in Cost Management

“fuzzy front end” of the product-realization process. That is when it is most important to get the Notes

product and its functional architecture right the first time. We have found a strong correlation
between the cost savings obtained and how early in the product-realization cycle Target Costing
was initiated. The moral: start early!
14.2.3 Tools and Techniques

Target Costing is a largely quantitative process. There are many tools and techniques that can be
used. Some examples used in the various Target-Costing steps include:

Define the Product: Conjoint Analysis, Quality Function Deployment, Market Analysis,
Competitor Analysis, Product Roadmapping, Market-Feature Tables.
Set the Target: Conjoint Analysis, Experience Curves, Price Roadmapping, Competitive
Intelligence, Reverse Engineering.
Achieve the Target: Value Engineering & Analysis, Component Roadmapping, Cost Analysis
Tools, ABC Practices, Simulation Tools, Supply-Chain Analysis.
Maintain Competitive Cost: Cost-Reduction Methodology.
Mapping the Product to the Market: While it is not as quantitative as some of the other tools,
we have found the Market-Feature Table to be a simple but powerful way to focus on customer
needs. A depiction is shown below, for one market segments.

Table 14.1

MARKET SEGMENTS
Market 1 Market 2 Market 3
(# of customers) (# of customers) (# of customers)
Premium:
Further additional Feature L … …
features desired by some Feature M … Target costing generally
customers will to pay a … … is focused here.
premium price
(2,000) (200) (20)
Step-up:
Additional features Feature H … …
desired to some Feature I … …
customers who are Feature J … …
willing to pay a higher
price … … …
(200,000) (20,000) (2,000)
Basic: Feature A … …
Features desired by all Feature B … …
customers, that they are Feature C … …
all willing to pay for.
Feature D … …
… … …
(2,000,000) (200,000) (20,000)

The idea is to map the features desired by different market segments onto a single page. This
forces you to concentrate on the really important features or functionalities at a high level. The
Market for the potential product is divided into “natural” market segments. These distinctions
may be by geographic region, by customer’s type of business, by consumer-government-business,
by relative customer affluence, etc. Then the features desired by each market segment are divided

into three categories:
Basic: features desired by all customers in the segment, that they are all willing to pay for.
Step-up: additional or optional features desired by some customers in the segment who are
willing to pay a higher price to get them.
Premium: further optional features that a few customers want, and that carry a premium price.
The size of the market in each category is also listed, in terms of number of potential units that
can be sold, or by potential revenues.

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