Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 10

Competitive Advantage: Basic Concepts
Keith Golding has decided to purchase a personal computer. He has narrowed his choices to two: Brand A and Brand B. Both brands have the same processing speed, hard disk capacity, RAM, graphics card memory, and basic software support package. Both come from companies with good reputations. The selling price for each is identical. After some review, Keith discovers that the cost of operating and maintaining Brand A over a three-year period is estimated to be $200. For Brand B, the operating and maintenance cost is $600. The sales agent for Brand A emphasized the lower operating and maintenance cost. She claimed that it was lower than any other PC brand. The sales agent for Brand B, however, emphasized the service reputation of the product. She provided Keith with a copy of an article appearing in a PC magazine that rated service performance of various PC brands. Brand B was rated number one. Based on all the information, Keith decided to buy Brand B.
Required:
1. What is the total product purchased by Keith?
2. Is the Brand A company pursuing a cost leadership or differentiation strategy? The Brand B company? Explain.
3. When asked why he purchased Brand B, Keith replied, "I think Brand B offered more value than Brand A." What are the possible sources of this greater value? If Keith's reaction represents the majority opinion, what suggestions could you offer to help improve the strategic position of Brand A?