Booz Report: Activity Based Costing Model in a Saturated Market

To facilitate innovative idea generation in strategy development, management should seek to push the limits of conventional brainstorming activity based costing steps. Make seeking the innovative and the unusual the goal of the activity based costing session. Subject status quo options to a risk analysis as rigorous as the one change options are willing to face. Focus strategy development on providing a detailed refutation of existing strategy instead of its validation. Methodically encourage drawing insights external to the core industry. Watch strategic experiments closely and subject them to rigorous gate funding. There are many Behavior economics flaws, such as mental accounting, sunk cost fallacy, and the endowment effect, can diminish creativity. View all assets and businesses as available for sale to keep things in perspective.

The strategy to skim the market is most effective when creating a new product with little to no competition to gain the early market activity based costing. Setting a high price point allows marketers to capture the early adopters who are not price sensitive. Marketers are wary of the phenomenon known as crossing the “the chasm,” which is threshold that many new products fail to survive past. The struggle of crossing the chasm is not of price, but the product actually. Pricing skimming pricing strategy works well when we are releasing a product where there are no or few competitive products. One reason to capture the early market is to capture as much consumer surplus as the market will bear, as control is key at this stage. A lot new products sell successfully to the early market, but they fail to reach the critical mass needed for true adoption into the later adoption stages. It is typical to use a activity based costing steps at the beginning of a product’s adoption lifecycle. Marketers say many products fall into a chasm.

Although it is the case that the activity based costing analysis is typically employed as the rational element, its uses can be both political and emotional in nature costing methods. From non-rational viewpoint, the document is used to gain strategic insight into those key drivers of hot management issues, assess the financial standing of the organization, and provide quantifiable and objective backing to business engagements or other investments. From an emotional perspective, the business case is used to gain management buy-in and build a connection with key decision makers and create a vision of what the management team could become. Also, it is used to create career wins for oneself, business project sponsor, and other primary stakeholders if identified business opportunities are acted upon.

For traditional activity based costing thinking, most people rely on the well established business framework activity based costing, developed by Porter activity based costing. Through this activity based costing framework-based business evaluation, an organization can decide on its competitive strategy, which falls into either one of four buckets: cost leadership, differentiation strategy, cost focus, or differentiation focus. .

Look at any product launch strategy, developing the pricing strategy is a critical driver to success activity based costing. To come up with the most effective pricing strategy, an organization need to evaluate under the backdrop of the consumer adoption curve. Largely, the product’s positioning along its product adoption curve will dictate its high level activity based costing. Pricing strategy starts with a simple question of to skim the market versus market penetration.

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