Cost comprise impact

Some of the policy choices which tend to have the maximum impact on cost comprise:

1. Product performance, configuration, and characteristics
2. Mix and variety of products offered
3. Level of service provided
4. Spending rate on marketing and technology development activities
5. Delivery time
6. Buyers served (e.g., small versus large)
7. Channels employed (e.g., fewer, more efficient dealers versus many small ones)
8. Process technology chosen, independent or scale, timing, or other cost drivers
9. The specifications of raw materials or other purchased inputs used (e.g., raw material quality affects processing yield in semiconductors)
10. Wages paid and amenities provided to employees, relative to prevailing norms
11. Other human resource policies including hiring, training, and employee motivation
12. Process for scheduling manufacture, maintenance, the sales force and other activities

Though policy choices always play an independent role in determining the cost of value activities, they also frequently affect or are affected by other cost drivers. Process technology is frequently dictated partly by scale and partly by what product characteristics are preferred, for illustration. Furthermore, other cost drivers unavoidably affect the cost of policies. For illustration, an automated ticketing and seat selection system might well be subject to economies of scale which make such a system very expensive for a small airline to accept.

Policies usually play a particularly necessary role in differentiation strategies. Differentiation frequently rests on policy choices which make a firm unique in performing one or more value activities, deliberately increasing cost in the procedure. A differentiator should understand the costs related with its differentiation and compare them to the price premium which results. This can be completed only by isolating the effects of policies on cost.