1. (i) The competitive strategy refers to the long-term plan that a company develops in order to gain a competitive advantage over its rivals. The four types of competitive strategy that are most important are cost leadership strategy, differentiation strategy, low cost focus strategy and differentiation focus strategy. The business by focusing one or more of these strategies tries to achieve be competitive advantage. A business is said to have attained sustainable competitive advantage if it can develop attributes so that the competitors can be outperformed. The access to the resources and highly skilled staff are the example of the attributes that provides a sustainable competitive advantage to a business (Renz, 2016).
The two most common competitive strategy are cost leadership strategy and product differentiation strategy. The large companies that has the ability to obtain products cheaply and attain economy of scale in the production employ the cost leadership strategy. The main intention behind the cost leadership strategy is to become a low cost producer as compared to the competitors. There are two options for a business to increase the profits the first option is to decrease cost and the second option is to increase sales. In the cost leadership, strategy the business focuses on increasing profit by reducing costs (Fullerton et al., 2014). The cost leadership strategy is important in the market where price plays an important role. The cost leadership strategy is important in the market where price plays an important role. Numerous multinational companies have adopted the cost leadership strategy in order to attain competitive advantage. The example of such two companies that have adopted the cost leadership strategy are Walmart and McDonalds. The Wal-Mart is listed in the New York stock exchange and the code of the company is WMT. The company has successfully used the cost leadership strategy by lowering the prices of the products in order to attract the customers. The company focuses on offering lower prices rather than increasing sale in order to gain a competitive advantage over the competitors. The Wal-Mart has been able to achieve this because of efficient supply chain and large scale of operation. They source product at cheaper cost following them the opportunity to sell the product at cheaper price. The company focuses on thin profit margin but high volume of sales. The McDonalds is another company that have adopted the cost leadership strategy. The company is listed in the New York stock exchange the code of the company is MCD. The company is in the restaurant industry that has the low yield margin (Otley & Emmanuel, 2013). This makes it difficult to adopt the cost leadership strategy in the restaurant industry. The McDonalds has been successful in cost leadership strategy by offering at lower price basic fast food meals. The company have been able to maintain the low price by following effective division of labor that has allowed the company to hire and train employees at lower cost. This cost savings have allowed the company to offer food at lower prices than the competitors thus implementing the cost leadership strategy.
The product differentiation strategy is another common competitive strategy. The companies that offers unique features in the product or services is known as the product differentiation strategy. The aim of the strategy is to develop competitive advantage by developing unique product and services. This uniqueness in the product will separate it from other competitors thus helping it to develop its own brand. The business that have been successful in adopting differentiation strategy has reduced the price sensitivity and created a brand loyalty for the customers. The two companies that have successfully adopted the product differentiation strategy are Nike and Apple. Nike is listed in New York stock exchange and the code of the company is NKE. The company is regarded as a premium athlete gear provider and has wide range of products. The business model of the company is to offer high quality sports material so that customers are willing to pay higher prices (Fullerton et al., 2013). The company has developed differentiation strategy by maintaining high standard in the athletic wear. The company has focused on the product line to produce high quality products that meets the expectation of the customer. Apple is another popular company that has adopted differentiation strategy for gaining competitive advantage. The Apple is listed in stock exchange and the code is AAPL. The company is engaged in development and design of electronic products. The business model of the company is to design and innovate newer and better products. The company has adopted multidimensional differentiation strategy. The company focuses on developing unique products that pushes the limits of the company and this strategy has helped the company to develop its own brand. It can be seen from the company’s ad campaign and product placement that branding forms an important component of the company’s strategy.
(ii) The company can select to adopt cost leadership strategy and product differentiation strategy. These strategies have their own set of advantages and disadvantages. Based on the above analysis it is recommended that the company should adopt product differentiation strategy. The main reason that the company should adopt product differentiation strategy as the competitive strategy is to improve the quality of the product. This in turn will help to create own brand and develop customer loyalty (Soin & Collier, 2013). The companies engaged in sports apparel in this industry competition is high. Therefore, maintaining superior quality will ensure that company could maintain competitive advantage. On the other hand, the company should not adopt the cost leadership strategy because as the competition is high in order to reduce the cost of the product the quality will have to be compromises. This will have a long-term negatives impact on the brand image and it may cause reputational damage to the company. Therefore, it is suggested that the company should not adopt the cost leadership strategy but should focus on the product differentiation strategy.
2. The customer profitability analysis is an evaluation process that allocates cost and revenue to the segment of the customers instead of assigning it to the product or department. The main aim of the customer profitability analysis is to determine the cost that is associated with doing business with different client groups. This analysis helps in determining customers that pulls the resources of the company away from the desirable and good customers (Ax & Greve, 2017). The customer profitability analysis is best determined by using the activity based costing. It helps the company to determine the net profit that the company derived from each customer. The companies that have adopted the customer profitability analysis are Microsoft and IBM. The Microsoft Corporation is a listed company and the code is MSFT. IBM is also a listed company the code is IBM. The implementation of the customer profitability analysis by the companies have shown that it is a very important tool for gathering market intelligence and developing strategic plan. This analysis has made the company more customer focused thereby improving the overall quality and service of the product (Van der Stede, 2016).
3. (i)
|
Particulars |
Department Stores |
Soccer clubs |
Sport shops |
|
Sales |
|||
|
Small |
$ 781,250.00 |
$ 2,343,750.00 |
$ 937,500.00 |
|
Medium |
$ 780,000.00 |
$ 2,031,250.00 |
$ 1,462,500.00 |
|
Large |
$ 255,007.00 |
$ 562,507.00 |
$ 375,007.00 |
|
Total Sales (A) |
$ 1,816,257.00 |
$ 4,937,507.00 |
$ 2,775,007.00 |
|
Expenses |
|||
|
Material cost |
|||
|
Small |
$ 68,750.00 |
$ 206,250.00 |
$ 82,500.00 |
|
Medium |
$ 78,000.00 |
$ 203,125.00 |
$ 146,250.00 |
|
Large |
$ 191,250.00 |
$ 421,875.00 |
$ 281,250.00 |
|
Labor |
|||
|
Small |
$ 62,500.00 |
$ 187,500.00 |
$ 75,000.00 |
|
Medium |
$ 66,000.00 |
$ 171,875.00 |
$ 123,750.00 |
|
Large |
$ 153,000.00 |
$ 337,500.00 |
$ 225,000.00 |
|
Manufacturing Overhead |
|||
|
Small |
$ 40,000.00 |
$ 120,000.00 |
$ 48,000.00 |
|
Medium |
$ 43,200.00 |
$ 112,500.00 |
$ 81,000.00 |
|
Large |
$ 102,000.00 |
$ 225,000.00 |
$ 150,000.00 |
|
Selling and distribution costs |
|||
|
Marketing and Promotion |
$ 276,750.00 |
$ 369,000.00 |
$ 276,750.00 |
|
Sales Commission |
$ 307,500.00 |
||
|
Sales Visits |
$ 276,750.00 |
$ 338,250.00 |
|
|
Delivery activities |
$ 650,812.02 |
$ 428,364.47 |
$ 1,995,823.52 |
|
Tracking misplaced or lost items |
$ 246,000.00 |
$ 615,000.00 |
$ 369,000.00 |
|
Administrative expenses |
|||
|
Accounts Maintenance |
$ 256,180.38 |
$ 834,075.67 |
$ 697,048.95 |
|
Delivery activities |
$ 87,294.53 |
$ 57,457.26 |
$ 267,703.22 |
|
Tracking misplaced or lost items |
$ 109,988.00 |
$ 274,970.00 |
$ 164,982.00 |
|
Total Customers costs (B) |
$ 2,708,474.93 |
$ 4,564,492.39 |
$ 5,629,807.68 |
|
Net Customers Profit |
$ (892,217.93) |
$ 373,014.61 |
$ (2,854,800.68) |
Table 1: Customer Profit Analysis
(Source: Created by Author)
(ii) The cost pool is an accounting term that refers to the amount of cost that has to be allocated between the goods and services of the business. In this case, the two other cost pool that could have been included or sales man Commission and inspection expenses. The cost drivers are the basis on which the costs are allocated on various departments. In this case, the cost driver that could have been used for allocating sales man commission is the number of units sold. The reason behind using number of unit sold as a cause driver for allocating detachment Commissioner is that the commission is dependent on the sales made by the person. On the other hand, the cost of inspection can be the number of inspections. The cost of inspection will be dependent on the number of inspection made so selecting the number of inspection as a cause driver is justified.
4. The table above shows the customer profitability analysis for department store, soccer clubs and sports shops. The calculation shows the net profit or loss that the business has made from each of the above categories of customers. The company is engaged in selling three types of soccer tops this are of small medium and large size. The total revenue earned by departmental stores is $1,816,257.00, by Soccer Club is $4,937,507.00 and by sports shop is $2,775,007.00. Then all the costs have been deducted from the revenue for ascertaining the net customer profit or loss. The activity cost have been classified as selling, distribution cost, and administrative expenses. Then each of these costs have been further classified in various categories. Then that cost is distributed among the customers based on the cost drivers. After making all the calculations it has been found that department store sports shop has made a loss of $(892,217.93) and $(2,854,800.68) respectively. The company has made a profit of $373,014.61 for soccer club customers. Therefore based on the above calculation it can be said that only profitable customer group for the company is sports club (Lopez-Valeiras et al., 2015).
On further analysis of the customer, profit statement have shown that the main reason for the two categories of customers for making losses are the activity costs. The scrutiny of the activity cost shows that the activity cost of the customer is 105% of the revenues in case of department stores. On the other hand, in case of sports shop it can be seen that the activity cost is 159 % of the revenue. These are the reasons for which this customer group have made huge losses.
5. The strategic issues are the critical changes that affects the value, mission, resources and structure of the organization. In this case, the customer profit analysis have shown that there are two categories of loss making customer for the company. The strategic issues used to make decision whether to continue or discontinue with this customers. It is an important strategic decision so actions should be taken after proper analysis. This decision is strategic in nature because this could change the structure and resources of the company (Contrafatto & Burns 2013).
The analysis of customer profit statement have indicated that the basis on which the activity costs are allocated among various customer group is not appropriate. The reason is that on analyzing the proportion of activity cost among various customer groups it appears that the distribution of activity cost is unbalanced. It can be seen that 21% of the activity cost is allocated to the department store, the 29% of the activity costs is allocated to soccer club and 50% of the activity causes are located to the sports shops (Hiebl, 2014). Where if the sales figure is compared then it can be seen that department store contributes 19% of the total sale, soccer club contributes 52% of the total sales and the sports shop contributes 29% of the total sale. Therefore, it is apparent from the above figures that 50% of the activity cost is absorbed in sports shop that only contribute 29% of the total sale. Hence, it is an important strategic issue for the company change the basis of allocating the activity cost.
|
Particulars |
Department Stores |
Soccer clubs |
Sport shops |
|
Cost allocation % |
21% |
29% |
50% |
|
Sales % |
19% |
52% |
29% |
Table 2: Cost and sales proportion
(Source: Created by Author)
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