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CMA Final · Strategic Cost Management · Introduction to Strategic Cost Management

Aditya Foods Ltd classifies its quality-related and activity-based spending to support a strategy of differentiation. Which of the following spending patterns would most clearly reflect a differentiation strategy rather than a cost leadership strategy?

Increasing spending on innovation, branding and customer service reflects a differentiation strategy, because the firm seeks a premium price from unique value. Cutting research, standardising ranges for volume, and closing outlets to reduce overheads are cost leadership actions aimed at lowering unit cost.

  1. AIncreasing spending on product innovation, branding and customer service to command a premium priceCorrect
  2. BCutting all research spending to minimise the cost per unit
  3. CStandardising the product range to maximise production volumes
  4. DClosing outlets in order to reduce overheads regardless of customer perception

Explanation

A differentiation strategy seeks a premium price through unique features, brand and service, so spending on innovation, branding and service is consistent with it. The other options are typical cost leadership measures aimed at lowering unit cost through standardisation and cost cutting.

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