Target costing originated in the Japanese industries in the 1970s. It is a proactive technique of cost accounting and was adopted to help businesses face stiff competition. The design stage of the product incurs almost 90-95% of the total product costs. Target costing is done through proper planning of future products to ensure its success, even before it is offered in the market. The use of design to cost, value engineering and cost reduction techniques are involved in target costing. It works best when used along with Activity-Based Costing (ABC). This method gives best results when adopted in assembling firms. Nowadays, firms adopt target costing as a business strategy in order to increase the life of the product. It aims at cost reduction and has proved very beneficial to Sony and Toyota in increasing their market share. The firms that adopt target costing lay emphasis on leadership in product and enhancing the market share.

Target costing can be defined as: "A cost management tool for reducing the overall cost of a product over its entire life cycle with the help of production, engineering research and design." For a business to succeed in the long run, it has to generate sufficient profits to ensure financial growth and adequate return to its stakeholders. Earlier, there were stringent market regulations and few competitors. The demand was more than the supply, hence the prices were not market driven. The sellers had the discretion of fixing the price by adding a certain percentage of profit to it. Thus, the company could make good profits without facing many challenges. The customers also had very few alternatives available.

Globalization and liberalization brought in its wake stiff competition and price wars. Companies which enjoyed little competition, high demand for their goods, and the freedom to fix the prices, faced stiff competition and less demand due to an increase in the number of substitutes offered to the customers.

In the present scenario, where firms are facing price wars, companies in order to attract more customers have to be proactive in fixing their prices. This should start at the early stages of the product development.

The firms are forced to operate in a competitive market, where every firm tries to maximize its market share. The market size being limited, the only way out for a firm to flourish is by increasing its market share. The first step is to identify the market segment it wants to serve. The second step is the need analysis of the tastes and preferences of the potential customers. The increasingly demanding and finicky customers spoilt for choice in an increasingly competitive market is a moving target, extremely difficult to satisfy. The firms are struggling to survive in the hazing price wars.

Accounting World Magazine, Target Costing, Cost Reduction Techniques, Activity-Based Costing, Market Segments, Product Development, Total Quality Management, Organizational Information Systems, Time-Consuming Process, Operations Management, Cross-Functional Cooperation, Top Management.