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Cost Management-final                                                                                                       9

Internal Differentiation Analysis : The value chain approach is also used by organisations to identify opportunities for creating and sustaining superior differentiation. In this situation, the primary focus is on the customer's perceived value of the products services.

As with internal cost analysis, internal differentiation analysis requires firms to first identify r value-creating processes and primary cost drivers. They are then ready to perform a differentiation analysis using the following guidelines :

1.Identify the customers' value-crating processes;

2.Evaluate differentiation strategies for enhancing customer value; and

3.Determine the best sustainable differentiation strategies.

Now we shall discuss these guidelines

1.Identify the customers' value-creating processes : To pursue a superior differentiation

strategy, a firm's processes must enhance those of its customers. Thus, a firm should

Carefully study the value-creating processes of its customers. Exhibit 2 presents such an analysis for Crown, Cork and Seal Company (CCS), a metal can maker, and its customers in the late 1970s. The metal container industry was characterized by low growth, low profits and intense competition. The CCS succeeded with a differentiation strategy, which is usually very difficult to accomplish in a commodity-type business. Two different groups of customers — food and beverage canners — accounted for 80 per cent of the metal containers produced.

2. Evaluate differentiation strategies for enhancing customer value : The key to successful differentiation under the value-chain approach is to identify the value creating processes that distinguish a firm's products or services from those of its competitors, making this distinction, customer value is emphasized. The ways customer value can be enhanced through differentiation include :

Product features — that are esthetically appealing or functionally superior. For example, the Mercedes-Benz automobile accomplished this feat so well for years that its name became synonymous with the highest level of quality — people would describe

a product as the "Mercedes-Benz" of its category :

Marketing channels— that provide desired levels of responsiveness, convenience variety and information for example:


Designing distinctive cans for customers may assist their own marketing activities.


Consistent can quality lowers customers canning costs by avoiding breakdowns and holdups on their canning lines.


By maintaining high stocks and offering speedy delivery, customers can economise on their own stock-holding (they may even be able to move to a just-in-time system o can supply).


Efficient order processing can reduce customers ordering costs.


Capable and fast technical support can reduce the costs of breakdowns on canning lines.

Service and support— tailored to end-user and channel member sophistication an urgency of   need.

Brand or image positioning — that lends greater appeal to the company's offering on critical selection criteria. For many years, this quality image has allowed the American Express Co. to command a significant price premium in the highly competitive

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