ABSTRACT
The intensity of competition influences how much attention the firm should pay to competitive offerings in the target costing process. The intensity of competition influences the target costing process, when the basis of competition is enhanced product functionality. Customers come to expect a steady rise in product functionality and have quite clear expectations for their future purchases. Customer sophistication determines the width of the survival zones of new products. The degree of customer sophistication determines how good customers are at detecting differences between the price, quality, and functionality of competitive products. Target costing is more than simply a profit or cost management technique. It is a highly sophisticated way both to increase intraorganizational integration across a number of functions and to transmit the competitive pressure faced by the firm to its product designers and suppliers. The firms' product strategy and the characteristics of the product all suggest that the benefits of target costing will be high.
