Question

Melissa Corporation makes a​ special-purpose machine,​ D4H, used in the textile industry. Melissa has designed the D4H machine for 2017 to be distinct from its competitors. It has been generally regarded as a superior machine. Melissa presents the following data for 2016 and 2017.

Suppose that during 2017​, the market for Melissa​'s ​special-purpose machines grew by 4​%. All increases in market share​ (that is, sales increases greater than 4​%) are the result of Melissa​'s strategic actions.

requirements : Calculate how much of the change in operating income from 2016 to 2017 is due to the​ industry-market-size factor, product​ differentiation, and cost leadership. How successful has Melissa been in implementing its​ strategy? Explain.

Answer 1

The ultimate objective of a profit company is to achieve superior performance in comparison to their competitors .

In order to survive in an industry, firms must meet two criteria:-  

* They must supply what customers want to buy and

* They must survive competition.

An firms overall competitive advantage derives from the difference between the value it offers to customers and its cost of creating that customer value.

An offering or DIFFERENTIAL ADVANTAGE . If customers perceive a product or service as superior ,they become more willing to pay a premium price relative to the price they will have to pay for competing offerings. Ex: Customers of apple pay a higher price for its products.

Relative LOW-COST ADVANTAGE, under which customers gain when a company's total costs undercut those of its average competitor. Example: A company which can provide similar products at much lower costs.

PRODUCT DIFFERENTION : A differentiaton advantage can be achieved by adopting the following techniques:

Suoerior Quality: The customers are offered a better quality product in the similar price ranges.

Superior Innovation: The company continuously offers innovative products ahead of its competition.

Superior Customer Responsiveness : Company products or services which are aligned with customers expectations.

COST LEADERSHIP:

A firm enjoys a realtive cost advantage if its total costs are lower than those of its competitors.

* Charge a lower price than its competitors for its product or services in order to gain market share and still maintain current profitability.

* Match with price of competing products or services and increase its profitability.

Operating profit of a firm is affected by various components which are responsible for changes in the revenue and costs. A change in the profit may be due to revenue or costs or both the factors.