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Cost Management-final                                                                                                       10

financial services market.

Price — including both net purchase price and cost savings available to the custom through the use of the product and service.

3. Determine the best sustainable differentiation strategies : For a firm to achieve superior differentiation, it must utilise the best mix of resources in creating value for customers. In order to prioritise its processes as sources of differentiation, a company mm determine what attributes of each process enhance customer value.

The more unique a firm's resources and skills, the more sustainable is its differentiation advantage over competitors.

Vertical Linkage Analysis : Linkages among value-creating processes do not end with the activities within a firm. The greatest competitive advantage may come out of linkages between a firm’s value-creating activities and those of its suppliers, channels or users.

Vertical linkage analysis is a much broader application of internal cost and differential analysis that includes all upstream and downstream value-creating processes throughout d industry. Vertical linkage analysis considers all links from the source of raw materials to the disposal and/or recycling of the product Exhibit 3 outlines the vertical links involved in tl production of "fast food" containers.

VERTICAL LINKAGES IN THE PRODUCTION OF PLASTIC FOOD CONTAINERS

Natural gas producers

Ethane producers

Styrene producers

Polystyrene producers

Fast food carton producers

Fast food restaurants

Final consumers

Vertical linkage can reveal which activities are the most (and least) critical to competitive advantage (or disadvantage). For example, Swiss watchmakers succeeded for years relatively small, labour-intensive assemblers. Then came the 1970s and the advent of low cost, mass-produced watches. The Swiss responded by restructuring their industry to gain economies of scale similar to those enjoyed by their new global competitors.

However, the Swiss failed to realise that their critical problem was not in manufacture This set of activities added only a small proportion of the value of their final product. Far more significant were

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