The strategic implications can be measured in terms of a component’s relative cost versus its relative performance. There are four different situations:
1 If a component is both more expensive than and inferior to that of a competitor, a strategic problem requiring change might be necessary. It could be, however, that the component is such a small item in terms of both cost and impact on the customer that it should be ignored.
2 If the component is competitively superior, a value analysis, where a component’s value to the customer is quantified, may suggest a price increase or promotion campaign.
3 If a component is less expensive than but inferior to that of a competitor, a value analysis might suggest either de-emphasising that part or upgrading the relative rating.
4 If a component is less expensive than and superior to that of a competitor, a value analysis might suggest that component is emphasised, perhaps playing a key role in promotion and positioning strategies.
A cost advantage may be obtained in many ways, e.g. economies of scale, the experience curve, product design innovations and the use of ‘no-frills’ product offering. Each provides a different way of competing on the basis of cost advantage.
