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ORIGINAL QUESTION:
Assignment 1: Discussion—Predicting and Developing a Long-Term Growth Strategy
To develop a strategic plan, as a nonaccounting manager, you need to analyze and link management accounting data and performance information with business strategies. You also need to extend the scope of management accounting beyond the organization. For this perspective, you will need to focus on variables that are external to the firm, such as variables relating to markets, customers, and competitors. This external focus will help you develop a sustainable competitive advantage, which is the primary element of your long-term growth strategy.
In this assignment, you will analyze the factors that affect the long-term growth strategy of a company.
Tasks:
Respond to the following:
What are some of the ways in which you can secure a sustainable cost advantage over the competition?
STUDENT RESPONSE:
What can you learn from the financial statements of competitors that determine the relative cost position of your company?
In general, there is a lot that you can learn from the financial statements of competitors. Financial statements provide insights into how your business is doing compared to the competition. Financial statements allow for you to rank your company against other competitors in the same market as well as provide insight into your competitor’s profits, operating expenses, net income and total assets. Needless to say, financial statements of competitors determine the relative cost position of your company by determining how low a company must bid in order to win a competitive contract from a competitor, to test whether a cost advantage it believes it has is real and sustainable and lastly to anticipate how a competitor is likely to react to a price change if competition of a product is imposed.
Some ways in which you are able to secure a sustainable cost advantage over the competition would be devising a favorable location, differentiation, creating efficient processes and/or producing a product or service at a lower cost than the competition. “For example, an economy car with poor build quality can’t have a cost advantage over a luxury car with superior build quality. For this reason, the term cost advantage is typically applied to commodity products and services where customers usually choose the lowest price item” (Spacey, 2016). The best way to secure a sustainable cost advantage over the competition is to “know” your competition and marketplace because a cost advantage doesn’t necessarily mean that a lower price is always offered. In other words, there is room to set the standard umbrella for price and quality within your marketplace. To be successful, you need to be able to articulate the benefit you provide to your target market that’s better than the competition. That is your competitive advantage.
How does maintaining a strong understanding of relative costs help you maintain the competitive advantage?
Maintaining a strong understanding of relative cost can help to maintain the competitive advantage by helping the business and/or organization to understand and estimate how the company costs compare to its other competitors. By maintaining a strong understanding of relative cost a company can maintain the competitive advantage by anticipating how a competitor is likely to react to a price change; to predict how a price war may evolve and to test whether a cost advantage it believes it has is real and sustainable. According to Rivkin, a strong understanding of relative cost can help a company to decide how low a company must bid in order to win a competitive contract from a competitor; to identify opportunities for internal cost reduction; and how much the costs of an acquired company might be reduced and what a reasonable price might be for the company; and so forth (Rivkin, 2007, pg. 15).
How do you use cost structure to differentiate products? Do you think product differentiation is a successful growth strategy? Why or why not?
Cost structure can be used to differentiate products by selecting a target audience or market to sell the product in order to create a bigger competitive advantage over other competitors. I believe that product differentiation is a successful growth strategy because a successful product differentiation strategy can create brand loyalty among customers. For example, product differentiation that is focused on cost value of a product verses other similar products in the same marketplace can create a perceived value among consumers and potential customers. “For small businesses, a product differentiation strategy may provide a competitive advantage in a market dominated by larger companies” (Kelchner, 2016). The consist delivery of quality and value to consumers through product differentiation can influence brand loyalty. A successful growth strategy due to the consumer’s observation of value over others competitors in the same marketplace can boost a business into high profits and revenues if the cost structure is kept to a minimal low cost and the product is considerably different.
What is the usefulness of conducting a customer profitability analysis?
There are benefits to conducting a customer profitability analysis, one major benefit is avoiding the high cost of low profit customers. “The premise behind customer profitability analysis is simple – does it cost more to do business with certain clients than what is brought in? Some customer groups provide profit for a company, and these are the groups that marketers target with advertisements and fantastic deals” (Whitsett, 2017). The usefulness of conducting a customer profitability simply put is the elimination of customers that are costing the business money, and the increase of productivity across the organization. For example, customers that demand special payment terms, low margin pricing and or have excessive service requirements can unfortunately pull company resources away from desirable clients; this is where a customer profitability analysis can become useful to eliminate customers that are distracting from cross selling additional services or products.
References:
Kelchner, L. (2016). The Advantages of a Product Differentiation Strategy. Chron. Retrieved from,
http://smallbusiness.chron.com/advantages-product-differentiation-strategy-17691.html
Rivkin, J. (2007). Analyzing Relative Cost. Harvard Business School Case Study Review.
Spacey, J. (2016). What is a Cost Advantage? Simplicable. Retrieved from, https://simplicable.com/new/cost-advantage
Whitsett, D. (2017). Customer Profitability Analysis: Definition & Examples. Study. Retrieved from, https://study.com/academy/lesson/customer-profitability-analysis-definition-examples.html
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