Pricing Strategy
The Toyota Production System has revolutionized the manufacturing industry and completely reconfigured the hierarchy of the automotive industry. Equally revolutionary was Toyota’s pricing strategy, with both profitability and competitive advantage growing with their increasing efficiency.
Traditional Pricing Strategy
Cost plus Profit = Selling Price
- When costs increase, raise the selling price to pass on the higher costs
to the customer – and maintain the desired profit margin
- Some manufacturers feel that the profit margin should be a hedge against
poor sales, to cover potential losses
Toyota Pricing Strategy
Selling Price minus Cost = Profit
- Markets and customers determine selling price
- Profit is what’s left after subtracting the cost
- Continuously reducing cost results in continuous profit growth
- Cost reduction through waste elimination is given the highest priority
