ACCA Applied Knowledge · Business and Technology · Competitive factors
A retailer's strategy is to win through lower prices than rivals. Management identifies that its distribution warehouses, supplier negotiations and store layouts are all costing more than industry norms. Which use of the value chain best supports the strategy?
The best approach is to analyse each activity for its cost drivers, reduce costs, and coordinate the linkages between activities. This fits a cost leadership strategy. Adding service features supports differentiation instead, and outsourcing all support activities is not a requirement of the model and may not reduce cost.
- AAnalyse each activity to find cost drivers and reduce cost, and coordinate linkages between activitiesCorrect
- BAdd new customer service activities to build a differentiated brand image
- COutsource every support activity to concentrate on primary activities only
Explanation
For cost leadership, the value chain is used to examine each activity's cost drivers and to exploit linkages, for example between procurement and inbound logistics, to cut total cost. Adding service features supports differentiation, which is a different strategy. Outsourcing all support activities is arbitrary and not required by the model, and could raise costs or harm linkages.
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