Page 262 - DCOM206_COST_ACCOUNTING_II

Unit 14: Emerging Concepts in Cost Management

 Increase unit sales (because additional buyers are won over by the differentiating features), Notes
and/or

 Gain buyer loyalty to its brand (because some buyers are strongly attracted to the
differentiating features and bond with the company and its products).
Differentiation enhances profitability whenever the extra price the product commands outweighs
the added costs of achieving the differentiation. Company differentiation strategies fail when
buyers don’t value the brand’s uniqueness enough to buy it instead of rivals’ brands and/or
when a company’s approach to differentiation is easily copied or matched by its rivals, thus
eliminating the basis of differentiation.

14.3.1 Types of Differentiation Themes

Companies can pursue differentiation from many angles: unique taste (Dr. Pepper, Listerine);
multiple features (Microsoft Windows, Microsoft Office; wide selection and one-stop shopping
(Amazon.com), superior service (FedEx in the next-day delivery); spare parts availability
(Caterpillar guarantees 48 hour spare parts delivery to any customer anywhere in the world or
else the part is furnished free); more for money (McDonald’s, Wal-Mart); Engineering design
and performance (Mercedes, BMW); prestige and distinctiveness (Rolex in watches) etc.
The most appealing approaches to differentiation are those that are hard or expensive for rivals
to duplicate. This is why sustainable differentiation usually has to be linked to core competencies,
unique competitive capabilities, and superior management to value chain activities.
Where along the value chain to create the differentiating attributes: Differentiation opportunities
can exist in activities all along an industry’s value chain; possibilities include:
1. Purchasing and procurement activities that ultimately spill over to affect the performance
or quality of the company’s end product.

2. Product R&D activities that aim at improved product designs and performance features,
expanded uses and application, more frequent first-on-the market victories, wider product
variety and selection, added user safety, greater recycling capability or enhanced
environmental protection.
3. Production R&D and technology-related activities that permit custom-order manufacture
at an efficient cost; make production methods safer for the environment; or improve
product quality, reliability and appearance.

4. Manufacturing activities that reduce product defects, prevent premature product failure,
extend product life, allow better warranty coverage, improve economy of end use, result
in more end-user convenience, or enhance product appearance.

5. Outbound logistics and distribution activities that allow for faster delivery, more accurate
order filling, and fewer warehouse and on-the-shelf stock-outs.
6. Marketing, sales, customer service activities that result in superior technical assistance to
buyers, faster maintenance and repair services, more and better product information
provided to customers, more and better training materials for end users, better credit
terms, quicker order processing, or greater customer convenience.

Achieving a Differentiation-based Competitive Advantage

Any of four basic approaches can be used:
1. First is to incorporate product attributes and user features that lower the buyer’s overall
costs of using the company’s product.

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