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Companies must have a continuous focus on controlling their costs. Cost Management does not mean "cost cutting". Cost management should not lead toa reduction in the quality of products and services and should not undermine the competitive advantage, the innovative potential and the customer satisfaction. Costs must always be managed in relation to the required customer value and the implemented strategy. In this sense we often speak of Strategic Cost Management.
Today, many companies have no insights into the relationship between the offered customer value and its cost. Salesmen sometimes have the impression that customers are willing to pay a premium price for flexibility, but flexibility also drives the cost. In markets with high rivalry among competitors, strong price competition and decreasing margins,customers demand more and more service without having to always pay that premium price.
Operational managers sometimes feel that customers dont pay enough for the service provided, but those managers dont accurately understand the cost to serve. Managers thus need detailed information about the cost to serve them and the drivers for cost reducing initiatives and improvement.