The Role of Non-Food Suppliers in Turkish Retailing Industry in the Target Costing Process: Can Target Costing be an Alternative in a Competitive Pricing?

Abstract

In a world where the competitiveness is the commune important value for all the firms, customers' choices and price are affecting deeply the firms and the industry. Price is not independent of the cost. Costing is also playing a major role in determining the valuable price for the market demand. Due to the intense competition, many companies have little flexibility when setting a price. When market conditions are extremely competitive, the price may be driven by the market (Schemelze et. al., 1999). The Japanese developed target costing to enhance their ability to compete in the global marketplace. This approach to product pricing differs significantly from the cost-based methods. (Needles et.al., 1999). Target costing is a challenge to the traditional cost-plus application. In this costing method, the selling price is not a function of estimated costs, the target cost is a function of the selling price and a desired profit (Sakrak, 1997). Target costing is a proactive, strategic cost management philosophy that is price-driven, customer-focused, design-centered, and cross-functional (CAM-1, 1995). Several studies have been made over decade on target costing in the production process but rare are made for service and retailing sector. Suppliers play a major role in the pricing process. They are using several methods to price their products. Competitiveness begins from the bottom and goes over the top. In this study, it is asked either the production and marketing department managers of non-food suppliers in the retailing industry by using a questionnaire to know how they are establishing the correct price. We profited from the target costing process that Ellram (2000) designed. The author divided the process into 6 steps and determined the supply management involvement for each of these 6 steps. We tried to answer the question how Turkish non-food suppliers are satisfying the needs occuring in these steps.