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FINANCIAL INCLUSION.- (PRODUCT DESIGNING @TARGET COSTING)
Promoting Financial Inclusion can be made through Innovative Policies in partnership with efficient cost management
and product designing using target costing keeping consumers purchasing parity.
Cost management is an old term where the most common meaning derived from this is the saving cost only. But with
changing times it has been modified and more modification resulted to higher research on cost management
techniques and strategies.
But the most heart broken part is that we have done extensive research is developing new set of strategies and
techniques but we failed in recognition of the said. Now we feel that we should use those extensive marketing of
those research strategies and techniques in bringing financial inclusion to achieve the ultimate goal of inclusive
growth in India.
In order to bring the demand from rural India particularly the low wage category of consumers we need to design
products keeping the target of consumer’s purchasing power. Now Product designing alone will not be enough to
bring forth the consumption we need pricing mechanisms designed with target costing to achieve the profit growth as
well as ROI.
One point is clear that product designing have to be made keeping the consumer purchasing capacity but what about
the product cost designing and pricing mechanism of the products depending on consumer purchasing parity.
I will like to bring forth the ECOFIN (Economics Cost Management and Finance) part of product desigining
mechanism based on target cost management.
Market-driven target prices have to create on the basis of target costing. Target costing, although its concept is used
throughout the product life cycle, is primarily used and most effective in the product development and design stage.
This have born out of the market-driven philosophy where target costing is based on the price-down, cost-down
strategy, which has allowed companies to win considerable share of their respective markets. This policy fits well in
rural and low wage income category people.
The companies should place more emphasis on their relative position in the market and product leadership. Since it
have been observed in various research programmes that more than 80% of product cost is already determined by
the time product design and processing is complete, cost management must start (and done substantially) at the
design stage. Designing products for the low wage income market and rural India where access to financial products
like Insurance, Mutual Funds followed with FMCG products, various Bank Loan schemes backed by proper
governance needs target costing process.
When the product designing cost will be well designed then only private equities and venture capitalist will find the
future of their investments to grow. Since, if the product is not designed as per the consumers keeping the cost
compositions in mind ROI attract more investments.
The process of implementation of target costing techniques in product designing will be brought by the management
accountant and not by another professional on this planet. Now question might come in to the mind why he and no
one else to replace him. Since specialist can from various industrial professions can bring Financial Inclusion. So
Management Accountants are the specialist in this case of designing product followed with target costing.
Factors to be kept in mind when the target costing is applied in product designing are:
• Should the company be making this kind of product?
• What constraints need to be applied in the design stage?
• Is the market demand consistent with our projections?
• Can we achieve the determined return in this competitive of a market?
When we get the report regarding the above queries we will proceed with the next stage of applying target costing on
product designing.
Now when Insurance companies and mutual funds and other financial weapons will placed on the table of low wage
income group or rural India we need to design the products following the process which will be explained in the next
couple of lines. But at the same time I would like to tell my readers that there is no predefined technique of doing
designing of products applying target costing. The cost management subject is unique in one way from all other
courses on this earth that is it varies from industry to industry product to product. Its not like taxation which remains
same for each company with a predefined format.
The Process:
Market Driven Selling Price - Desired Profit = Target Cost.
In the target costing model, costs are not the driver rather they are driven. The market sets the price, management
sets the profit margin, and the difference becomes the allowable cost—cost defined and constrained by price realities
and profit goals. New and increasingly necessary, target costing abides to the following logical flow and procedures:
• Developing selling price for the product:
• Establishing a Target Profit for the Product
• Determine the Target Cost
• Perform Functional Cost Analysis and/or Value Engineering
• Determine the Cost Estimate
• Decision: is the Cost Estimate on Target?
• Make the Final Decision .
When all the above components are mixed up then only we get the product designed applying target costing. If we
want financial inclusiveness to bring in rural and low wage income group manufactures of all the products across the
industry needs a radical change in product creation.
Product designers can no longer produce and market large volumes of standard products with a relatively stable
market and technological climate. There has been a shift toward unstable, rapidly changing markets and
technologies. To implement market-driven management across the organization, measurement and cost control
systems must be designed to motivate the desired consumer-oriented behavior. Cost management methods must
help with the production of new products that meet customer demands at the lowest cost.
Banks Insurance companies, FMCG, Hospital industry all needs to design products following the application of target
costing and all the above mentioned and upcoming techniques of research which will be presented to all of you in the
next coming articles.
Many of readers must be having a doubt in their mind why I did not explain each of the details of the process which
have evolved out of the research of product designing applying target costing.
I don’t want my readers to be confused and overloaded with analysis. The subject and the process is complex and
needs to be presented for fluid understanding in fragmented parts.
I promise my readers that in my next article I will give a brief analysis of the process discussed in this topic. The path
of INCLUSIVE GROWTH lead by FINANCIAL INCLUSION is not an easy process. Its as difficult to measure Indian
economy and as easy to understand the growth.