Achieving Cost Advantage

Learn how controlling costs affect a company’s competitive advantage.

Preview the first lesson free — get full access to all 4 lessons.

Course: On-Demand

(upbeat music) Welcome to Achieving Cost Advantage. A basic element for the survival of any business is to control its costs relative to its revenues. So it's assumed that some degree of focus on costs is nearly always present, but for any business that has competitors, cost can also serve as a competitive advantage. Any business that can operate at lower cost than its competitors while still providing equivalent value to its customers has several inherent competitive benefits. These include a greater ability to enhance its products or services, more money to acquire new customers, and the financial stamina to weather cyclical downturns. In addition, a cost advantage could be used to implement a lower price competitive strategy in the marketplace. For a small business with few products and services, developing a cost advantage over competitors is straightforward. You just find a way to run your business for less than your competitors without compromising anything important to your customers. Of course, that's easier said than done. For one thing, we already mentioned that saving cost is critical to basic survival, so many businesses already run lean to ensure profitability. If you own an independent gas station, for example, you sell essentially one product. You purchase that product from a refiner, so you have no control over the cost of raw materials or the refining process. You might have some bargaining power, but only if you have enough stations to use as leverage. Beyond that, you'd have to find a way to reduce your operating or labor costs to win a cost advantage over your competitors. But cutting salaries for your employees is not likely to be your optimal solution. So your challenge may sound simple, but the solution is not. If your business is large and diversified, both the problem and the solution can become quite complex. Much of this complexity revolves around the cost attribution, the allocation of costs to specific products, services or revenue centers. The allocation process gets very murky when you try, for example, to allocate labor costs from service departments to specific revenue sources. How, for example, do you allocate the cost of office cleaning or building maintenance to revenue sources? If you can't get a handle on the costs of different products or services, you'll be challenged to determine whether you have a competitive cost advantage or whether you should be pricing your products differently. In theory, you could break down every product or service you provide, including those you don't charge for, and determine your cost advantage product by product. But that can be impractical for many businesses. Even if you did, you wouldn't likely price each one of hundreds or thousands of products based on cost attribution since customers don't go to a different store for each product they need because it happens to be cheaper. They select the store that represents the greatest overall perceived value and experience to them, which incorporates cost with other factors. And they shop at that store, or perhaps one or two others, that also meet their qualifications. They accept that certain specific products could be purchased slightly cheaper elsewhere, but the convenience factor outweighs the potential cost savings.

Advanced Provider : Richard Lehman 4 Lessons · 11m in Arabic, German, English, Spanish, French, Portuguese, Urdu, Chinese

Course Description

A substantial majority of U.S. businesses exist in a competitive environment, which makes achieving and maintaining a competitive advantage critical to long-term success. Because your competitors will also understand this, the business landscape is dynamic, constantly changing as businesses jockey for competitive position. While this leads to an active business environment, it can also lead to over-emphasis on short-term marketing strategies at the expense of establishing longer-term, sustainable advantage. Competitive advantage is about winning and keeping customers. A one-time marketing or promotional campaign, or a continuous stream of marketing gimmicks and costs, will not achieve or sustain this for any business. Rather, businesses must look to an overall plan that may require a single large investment up front to reap success that will last months to years.

These lessons on Achieving Cost Advantage cover the benefits of operating business at a lower cost than your competitors while still maintaining equivalent quality. You will learn the value of conducting cost analyses to help you realize your expenses at varying volume levels, so you can adjust quickly to disruptions to business—such as higher wages, increased material costs, supply chain issues, and even pressure from a competitor—and control costs. You will also learn that when costs can’t be controlled any further, value chain reconfiguration may be a solution.

What You'll Learn

Learn how controlling costs can serve as a competitive advantage
Recognize how cost analysis and economies of scale can provide cost improvement and cost advantage
Identify the cost drivers of your business and how to control them
Determine whether reconfiguring the value chain is appropriate for your business
Understand why for customers convenience often outweighs cost
Conduct cost analyses to realize your expenses at varying volume levels

Key Takeaways

Operating a business at a lower cost than competitors while maintaining equivalent quality offers a competitive advantage.
Competitive advantage is about winning and keeping customers, which a one-time campaign or stream of marketing gimmicks will not achieve or sustain.
Cost analysis helps you understand expenses at varying volume levels so you can adjust quickly to disruptions such as higher wages, increased material costs, supply chain issues, and competitor pressure.
When costs can no longer be controlled, reconfiguring the value chain may be a solution.
Sustainable advantage may require a single large investment up front to reap success that lasts months to years.

Frequently Asked Questions

What does this course cover?

The course covers the benefits of operating a business at a lower cost than competitors while maintaining equivalent quality, the value of conducting cost analyses across volume levels, identifying and controlling cost drivers, economies of scale, and when reconfiguring the value chain may be appropriate. Lessons include Cost by Itself vs. Components of Differentiation, Cost Analysis and Economies of Scale, Cost vs. The Value Chain, and Test Your Knowledge.

Who is this course for?

It is suited to businesses operating in a competitive environment that want to achieve and maintain a sustainable cost advantage and control costs amid disruptions such as higher wages, increased material costs, supply chain issues, and competitor pressure.

What skills will I gain from this course?

The course develops skills in cost benefit analysis, cost management, cost reduction, cost volume profit analysis, overhead cost analysis, and profitability analysis.

How can a business respond when costs can no longer be controlled?

According to the course, when costs can't be controlled any further, reconfiguring the value chain may be a solution, and the course helps you determine if doing so is appropriate for your business.