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Cost Management-final                                                                                                       3

COMPETITIVE ADVANTAGE AND CUSTOMER VALUE

In order to survive and prosper in an industry, firms must meet two enter supply what customers want to buy, and they must survive competition. A ft competitive advantage derives from the difference between the value it offers to customers and its cost of creating that customer value.

Competitive advantage with regard to products and services takes two possible forms. The first one is an offering or differentiation advantage. If customers perceive a product or service as superior, they become more willing to pay a premium price relative to the price they will have to pay for competing offerings. The second is a relative low-cost advantage, under which customers gain when a company’s total costs undercut those of its average competitor.

The Value chain

Value chain activities

                                         Industry                                                 within the firm

Primary                                 Support

                                                                                                  Activities                               Activities

Supplier value chain

R & D

Procurement

Design

Firm Z value chain

Technology development

Production

Distribution value chain

Human Resource management

Marketing

Buyer value chain

Distribution

Firm infrastructure

Service

Disposal/Recycle value chain

Differentiation Advantage : It occurs when customers perceive that a business it's product offering (defined to include all attributes relevant to the buying decision) is of higher quality, involves less risks and/or outperforms competing product offerings. For ex-pie, differentiation may include a firm's ability to deliver goods and services in a timely manner, to produce better quality, to offer the customer a wider range of goods and services, other factors that provide unique customer value.

Once a company has successfully differentiated its offering, management may exploit the advantage in one of two ways viz., either; increase price until it just offsets the improvement customer benefits, thus maintaining current market share; or price below the "full premium" level in order to build market share.

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