Question

Adam has decided to purchase a sewing machine. He has two choices: Poppy and Iris. The sewing machines sold by Poppy and Iris offer the same features (work space, stitch quality and quietness, automatic end-of-stich features, easy to learn, lightning, and so on). Both are mail-order companies with good reputations. Both sewing machines sell for the same price. To help him make a decision, Adam gets more information on the two machines from the respective company websites. He discovers that the cost of operating and maintaining Poppy over a two-year period is estimated to be $400. For Iris, the operating and maintenance cost is $650. The sales information for Poppy emphasized the lower operating and maintenance costs. While the website for Iris, however, emphasized the service reputation of the product and the faster delivery time (Iris can be purchased and delivered one week sooner than Poppy).

Suppose that Adam’s decision was prompted mostly by the desire to receive the machine quickly. Informed that it was losing sales because of the longer time to produce and deliver its products, the management of Poppy decided to improve delivery performance by improving its internal processes. These improvements decreased the number of defective units and the time required to produce its product. Consequently, delivery time and costs both decreased, and the company was able to lower its prices on Poppy machines.

Question- Explain how these actions translate into strengthening the competitive position of the Poppy machine relative to the Iris machine. Also discuss the implications for the management accounting information system (i.e. what sort of information should be collected and reported?).

Answer 1

Strategies determine the unique selling point for any company.

In Poppy's stragety,emphasize was on the lower operating costs. On the other hand, Iris' strategic position is a displaying of a good service and after sales strategy alongwith faster delivery to ensure the customer in need gets tempted to buy it.

Now,Poppy can deliver fast, it has taken away the competitve edge from IRIS, as like Adam many customers were purchasing Iris because of the faster delivery time. Poppy now enjoys both competitive pricing as well as a fast delivery promise to its customers.

From a management reporting point of view, the change in the number of units sold after reducing the delivery time, should be reported. Whether prices to Iris' level can be increased should be looked into.