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Cost Management-final                                                                                                       22

4. Identify key success factors for each segment: Quality, delivery, customer satisfaction, market share, profitability and return on investment are common measures of corporate success. In this regard, each segment must be assessed using the most appropriate key success factors. Cost and differentiation advantages should be highlighted by these mea­sures.

Examination of differences among segments in buyers' purchase criteria can reveal clear differences in key success factors.

5. Analyse attractiveness of broad versus narrow segment scope : A wide choice of segments for an industry requires careful matching of a firm's resources with the market. The competitive advantage of each segment may be identified in terms of low cost and or differentiation.

Sharing costs across different market segments may provide a competitive advantage. For example, Gillette broadened its shaving systems to include electric shavers through its 1970 acquisition of Braun Lipdon recently entered the bottled iced-tea market.

On the other hand, when the Toro Company broadened its distribution channels for its snow blowers and lawnmowers to include discount chains, it almost went bankrupt. Felling betrayed, a number of Toro's dealers dropped its products.

Taking a narrow segment focus may leave a firm vulnerable to competitors. For instance, by relying solely on its lemon-lime soft drink, 7-Up left itself at a competitive disadvantage to Coca-Cola and Pepsi.

In many industries, aggressive firms are moving toward multiple-segment strategies. Campbell Soup, for example, makes its nacho cheese soup spicier for Texas and California customers and offers a Creole soup for Southern markets and a red-bean soup for Hispanic areas. In New York, Campbell uses promotions linking Swanson frozen dinners with the New York Giants football team; in the Sierra mountains, skiers are treated to hot soup samples. Developing multiple strategies is costly and often must be justified by an enhanced aggregate impact.

Some firms decide to avoid or abandon segments because of limited resources or because of uncertain attractiveness. For example, in the 1960s, IBM decided not to enter the mini­computer segment. This allowed upstart Digital Equipment Corp. to dominate this segment of the computer industry.

A segment justifying a unique strategy must be of worthwhile size to support a business strategy. Furthermore, that business strategy needs to be effective with respect to the target segment in order to be cost effective. In general, it is costly to develop a strategy for a segment. The question usually is whether or not the effectiveness of the strategy will compensate for this added cost.

LIMITATIONS OF VALUE CHAIN ANALYSIS

Value chain analysis is neither an exact science nor it is easy. It is more "art" than preparing Precise accounting reports. There are several limitations to the implementation and interpretation of value chain analysis. First, the internal data on costs, revenues and assets used for value chain analysis are derived from one period's financial information. For long-term strategy decision-making, changes in cost structures, market prices and capital investments from one period to the next may alter the implications of value chain analysis. Organisations, should ensure that the value chain analysis is valid for future periods. Otherwise, the value chain analysis must be repeated under new conditions.

Identifying stages in an industry's value chain is limited by the ability to locate at least one firm that participates in a specific stage. Breaking a value stage into two or more stages hen an outside firm does not compete in these stages is strictly judgement.

As discussed previously, finding the costs, revenues and assets for each value chain activity sometimes presents serious difficulties. There is much experimentation underway that may provide better approaches. Having at least one firm operate in each value chain activity helps to

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