Brisbane Ltd has always had a strategy of product differentiation; that is, providing high quality products and extracting a price premium from the market. During the recent economic downturn, Brisbane Ltd has seen its customer base diminish and has decided to move strategically to a cost leadership strategy, that is, to try to sell more products at a lower price.
a) What are the implications of this strategy change for the revenue cycle?
b) What changes would you expect to see in the revenue cycle?
c) What are the implications of this strategy change in terms of the usefulness of historical sales data for decision making?
a)The implications are clearly written in the textbook
b)You would expect to see alot of changes
c)It's written in the textbook.
a) The strategy change from product differentiation to cost leadership will have significant implications for the revenue cycle of Brisbane Ltd. The company's focus will shift from extracting a price premium to selling more products at a lower price. This will likely result in a decrease in average revenue per unit sold and a change in the revenue sources.
b) With the shift to a cost leadership strategy, several changes can be expected in the revenue cycle. These changes may include:
1. Decrease in the average selling price: Brisbane Ltd will lower its prices to attract more customers. This will result in a decrease in the average selling price per unit, potentially leading to lower overall revenue.
2. Increase in sales volume: The company will focus on selling more products to compensate for the lower prices. This may require developing new distribution channels, expanding market reach, and implementing marketing strategies to boost sales volume.
3. Changes in customer segments: With product differentiation, Brisbane Ltd may have targeted a specific high-end market segment. However, the shift to cost leadership may expand the customer base to include more price-conscious customers.
4. Cost reduction initiatives: To achieve cost leadership, Brisbane Ltd will need to identify opportunities to reduce costs. This may involve revisiting the supply chain, production processes, and overall operational efficiency to optimize expenses and improve profit margins.
c) The strategy change from product differentiation to cost leadership can have implications for the usefulness of historical sales data for decision making. Historical sales data may not accurately reflect the future performance of the company under the new strategy. Some implications include:
1. Pricing analysis: Historical sales data based on premium pricing may not be relevant when assessing the impact of the new lower prices. The company may need to collect and analyze new data to evaluate the effectiveness of the cost leadership strategy.
2. Market segmentation: Historical data regarding the behavior and preferences of high-end customers may not apply to the new customer segments targeted under the cost leadership strategy. Consequently, the company may need to gather new data specific to the new customer segments to make informed decisions.
3. Performance evaluation: Key performance indicators (KPIs) used previously, such as revenue per unit or profit margin, may need to be modified or new metrics introduced to assess the success and effectiveness of the cost leadership strategy.
In summary, the change in strategy will result in changes in the revenue cycle, including a decrease in average selling price, an increase in sales volume, changes in customer segments, and cost reduction initiatives. Historical sales data may need to be supplemented or reassessed to align with the new strategy and accurately inform decision-making processes.