Mercedes-Benz (MB) is one of the world's most successful car manufacturers since its establishment in 1886. They used target costing in the design and production of one of its products, the M-Class, which is a new sports utility vehicle model, in response to their first time suffering loss in 1993 because of cost inefficiency and problems with material purchasing and adapting to market changes. In this report, we are going to do an in-depth analysis on how MB reacts to the environmental changes by applying target costing (TC) into the production of its new product, M-Class All Activity Vehicle (AAV). Furthermore, problems existing are discussed followed with tailored recommendations.
             2. Competitive Environment and Strategy
             By taking advantages of its customer loyalty and sound brand image, MB was focusing on protecting their existing market share, which can be described as a defender (Miles and Snow, 1978). However, the first-time money losing in 1993 made MB realized that the market was changing rapidly and introducing new strategies is necessary, in order to remain alive in the market. To become a prospector (Miles and Snow, 1978) in the market, MB not only adopted a corporate differentiation strategy (Porter, 1980) through producing a range of high quality luxury cars started from 1993 but also a focused (Porter, 1980) differentiation strategy was used in production of its sports utility vehicle, the M-Class AAV. Since the extensive market research discovered that there were sale opportunities in the rapidly expanding sports utility vehicle segment market which was dominated by Jeep, Ford, and GM in early 1990s. To compete in this new market, MB developed the M-Class AAV, which not only possessed all the features of a typical sports utility vehicle but also maintained MB original characteristics such as superior handling. And Target Costing had been used to support this new vehicle production project. Moreover, in line wi...