Tag: E-commerce

People

The interactive aspect of service creation and consumption brings customer and service creator in direct contact with each other in many cases. Consider services such as beauty treatment, surgery, education, and dine in restaurant. All these services require customer-employee contact.

In goods marketing this kind of interaction is rare; instead there is interaction between the customer and the good. The intensity and duration of this contact varies. For instance, in psychotherapy the customer- provider contract tends to be intense and long in comparison to fast food restaurants.

Customer contact brings to the fore two distinct aspects unique to services ’what’ and ‘how’ of service product. ‘What’ represents the technical outcome that is created for customer such as the time taken in delivery of a packet or the timeliness of an airline, whereas ‘how’ refers to the process aspect of service creation like how a customer is treated by hotel personnel in check in, room service, check out, restaurant, and club. ‘How’ aspect determines the perception of ‘what’ aspect or the technical aspect of service quality. A highly competent surgeon or doctor who is excellent in technical aspect of service is unlikely to be perceived so if his process of treating the patient is cold, gruff, and unsympathetic.

Management of service personnel assumes importance for their role as service marketer and creator. They are the service organization to customers.

The following issues are important:

(i) Any compromise on employee skills and attitude is likely to produce quality variations or heterogeneous service performance. The lack of consistency works counter to creating a cohesive brand image.

(ii) It is not only important to invest in development of technical service skills, but customer contact employees must also be trained in interpersonal aspects. This requires building customer orientation, interactional skills, and other soft aspects such as attitude and empathy.

Physical Evidence in Service Marketing

Physical evidence assumes significance because services are intangible. A physical object defines itself but an intangible is not able to do. The evidence that is discernible by senses associated with a service is carrier of meaning. That is, customer’s bank upon physical evidence to extract what a service is all about.

For instance, the service provided by two restaurants or hotels is not known with experience. However, the evidence that surround these services conveys meaning and suggests how they are different from each other. Physical evidence is a collection of tangible cues that signals service quality. Although physical evidence belongs to operations or production area, it becomes a domain of interest to marketing because of its ability to impact customers.

Cleanliness, wall colour, dress of staff, equipment appearance, signboards, stationery, toilet condition, as well as smells and paint on wall convey what a hospital is all about in terms of its quality standards and position in relation to competition.

There are two types of evidences essential and peripheral

(i) Essential Evidence

It represents those things associated with a service that are essential to its creation. Their core nature does not allow a service to be conceived without its presence. For instance, aircraft is essential to airline service and car is essential to a rent a car company.

These are so core to service that they are not passable to customers; however customer may enjoy temporary access to them. The importance of essential evidence stems from the fact that customers form their core opinion or image based on the core evidence. A rent a car company is likely to be perceived poorly if its cars are not maintained properly.

(ii) Peripheral Evidence

Evidence in this case is marginal or operates at the fringe of image-making process. Anything that does not get categorized as essential falls into this category. For instance, newspapers, receipts, magazines, dust on the window panes, and floor mats all form peripheral evidence in case of a rent a car operations. Customers make a perception about restaurant on the basis of table linen and decor.

Three things important to the creation of place of service delivery are ambience, spatial arrangement, and social setting. Ambience refers to stimuli that customer senses are sensitive about such as lighting, sound, scent, temperature, and touch. All these sensory elements must be coordinated in line with the overall service positioning.

The space dimension is about how spatial utilization. How things are to be arranged in restaurant or retail outlet depends upon the service concept. For instance, in CCD outlets the furniture is arranged in a way to facilitate conversation. Finally, social setting means what kind of social environment is created.

For instance, a service may create a formal setting while another service may promote informality. In this regard people, their behaviour, sound conditions, decor, and spatial arrangement play a defining role. The difference in social setting is discernible when a quick service restaurant is compared with fine formal dine in restaurant.

Role of service evidence

A distinction is made in services marketing between two kinds of physical evidence:

• Peripheral evidence
• Essential evidence

(i) Peripheral Evidence

Peripheral evidence is actually possessed as part of the purchase of a service. It has however little or no independent value. Thus a bank cheque book is of no value unless backed by the funds transfer and storage service it represents.

An admission ticket for a cinema equally has no independent value. It merely confirms the service. It is not a surrogate for it. Peripheral evidence ‘adds to’ the value of essential evidence only as far as the customer values these symbols of service.

The hotel rooms of many large international hotel groups contain much peripheral evidence like directories, town guides, pens, notepads, welcome gifts, drink packs, soaps and so on. These representations of service must be designed and developed with customer needs in mind. They often provide an important set of complementary items to the essential core service sought by customers.

(ii) Essential Evidence

Essential evidence, unlike peripheral evidence, cannot be possessed by the customer. Nevertheless essential evidence may be so important in its influence on service purchase it may be considered as an element in its own right. The overall appearance and layout of a hotel; the ‘feel’ of a bank branch; the type of vehicle rented by a car rental company; the type of aircraft used by a carrier are all examples of physical evidence.

Managing the Evidence

Service organizations with competing service products may use physical evidence to differentiate their service products in the marketplace and give their service products a competitive advantage. A physical product like a car or a camera can be augmented through the use of both tangible and intangible elements.

A car can be given additional tangible features like a sliding roof or stereophonic radio equipment; a camera can be given additional tangible features like control devices which enable use in a wide variety of light conditions.

A car may be sold with a long life antirust warranty or cost- free service for the first year of ownership; a camera with a long-life warranty or free lens insurance. Tangible and intangible elements may be used to augment the essential product offer. In fact organizations marketing tangible dominant products frequently use intangible, abstract elements as part of their communications strategy.

Service marketing organizations also try to use tangible clues to strengthen the meaning of their intangible products.

Integrated marketing is the process of arranging your different marketing channels to work in tandem to promote your products or services, typically through a strategic campaign. Integrated marketing also works to align the primary brand message that’s being delivered through your marketing channels and assets.

Integrated Marketing is an approach to creating a unified and seamless experience for consumers to interact with the brand/enterprise; it attempts to meld all aspects of marketing communication such as advertising, sales promotion, public relations, direct marketing, and social media, through their respective mix of tactics, methods, channels, media, and activities, so that all work together as a unified force. It is a process designed to ensure that all messaging and communications strategies are consistent across all channels and are centered on the customer.

Different channels have different strengths and weaknesses, and different types of content suit different channels better Twiter is good for short, witty and pithy messages, whilst Pinterest is great for content related to design, and aspirational content works best on Instagram. So why not play to each individual channel’s strengths and design marketing for that channel specifically, rather than attempting to integrate all channels?

The answer is customers don’t care enough to pay attention to all your different messaging, and by not using one clear communications strategy to amplify your brand, your message will simply be lost in the constant stream of content that all consumers are subject to every day. For example, the brand storytelling report showed that 85% of consumers couldn’t name a memorable story told to them by a brand.

That means all of the thousands of brand’s storytelling efforts were completely forgotten by over four out of five people. You may think your marketing is the best thing in the world, but the reality is pretty much everyone is going to forget it very quickly. To make an impact you have to coordinate messaging. Have you ever wondered why McDonald’s are constantly advertising? Everyone knows who McDonald’s are. Everyone knows what McDonald’s offer and there is one on every street corner. So why do they advertise? Because there is power in reminding consumers about your brand, even if they already know that it exists. And of course, they may want to change the perception of its values and what it offers. This is why consistent messaging across channels is so critical. Without it, your message will fail to make an impact and you will just be yelling into a gale.

While integrated marketing campaigns can differ in their goals (e.g. converting views, building brand awareness, etc.), they should all have one component in common: to align your marketing channels to present a united marketing “front”.

If your marketing channels are players, consider your integrated marketing campaign the coach in charge of running plays and helping your channels work as a unified system not disparate ones.

It’s also more effective to run integrated marketing campaigns as compared to campaigns on individual channels. Integrated marketing campaigns are impactful for a few reasons:

• They reach a wider audience than a single marketing channel.
• They have a greater chance of being seen on multiple channels, thus keeping your brand top-of-mind and pushing visitors closer to conversion.
• They build trust with visitors as they see a consistent message on multiple channels.
• They save you money since assets can be shared between and repurposed for different marketing channels and, depending on your campaign, customers can help you market your product or service for you.
• These goals should also relate to at least one of the following key performance indicators (KPIs) and their subsequent metrics, which you can track when you launch your campaign.

Internal Marketing is a management approach that focuses on aligning, motivating, and empowering employees within an organization to provide the best possible service to customers. It views employees as internal customers and emphasizes the importance of fostering a positive workplace culture, enhancing employee engagement, and ensuring that all staff are informed and aligned with the organization’s goals and objectives. By treating employees well and providing them with the necessary tools and support, organizations can ultimately improve customer satisfaction and loyalty, leading to better overall business performance.

Internal Marketing recognizes that employees play a crucial role in the delivery of the brand promise and customer experience. When employees are engaged and motivated, they are more likely to be productive, innovative, and committed to the organization’s success. This approach is particularly important in service-oriented industries where employee interactions directly impact customer perceptions and satisfaction.

Functions of Internal Marketing:

• Employee Communication:

Internal marketing facilitates clear and effective communication within the organization. This includes regular updates on company goals, changes in policies, and new initiatives. Effective communication ensures that employees are informed, engaged, and aligned with the company’s objectives.

• Training and Development:

A significant function of internal marketing is to provide ongoing training and professional development opportunities for employees. This helps them enhance their skills, stay updated on industry trends, and perform their jobs more effectively, ultimately leading to improved customer service.

• Employee Engagement:

Internal marketing focuses on fostering employee engagement by creating a work environment that encourages participation, feedback, and collaboration. Engaged employees are more likely to be productive and motivated, positively impacting customer satisfaction.

• Brand Alignment:

This function ensures that employees understand and embody the company’s brand values and mission. By aligning employees with the brand’s objectives, internal marketing helps create a cohesive brand experience for customers.

• Recognition and Rewards:

Internal marketing emphasizes the importance of recognizing and rewarding employees for their hard work and contributions. This not only boosts morale but also motivates employees to continue performing at their best.

• Team Building:

Internal marketing promotes team-building activities and initiatives that strengthen relationships among employees. Strong teamwork enhances collaboration and fosters a positive work environment, leading to improved customer interactions.

• Feedback Mechanisms:

Internal marketing establishes feedback mechanisms that allow employees to share their thoughts and experiences. This feedback helps organizations identify areas for improvement, address concerns, and create a culture of continuous improvement.

Benefits of Internal Marketing:

• Enhanced Employee Satisfaction:

By focusing on employee needs and engagement, internal marketing leads to higher job satisfaction. When employees feel valued and supported, they are more likely to be happy in their roles, which can reduce turnover and improve retention rates.

• Improved Customer Service:

Engaged employees who understand the company’s goals and values are better equipped to serve customers effectively. This leads to improved customer service, which can enhance customer loyalty and satisfaction.

• Stronger Brand Loyalty:

When employees are aligned with the brand’s values and mission, they become brand advocates. This strong internal alignment fosters a sense of pride among employees, leading to increased brand loyalty both internally and externally.

• Higher Productivity:

Internal marketing initiatives that engage and motivate employees often lead to increased productivity. Motivated employees are more likely to go above and beyond in their roles, contributing to overall organizational success.

• Reduced Turnover Costs:

Organizations that invest in internal marketing and employee engagement experience lower turnover rates. This reduces the costs associated with hiring and training new employees, ultimately benefiting the organization’s bottom line.

• Innovation and Creativity:

A culture of engagement and open communication encourages employees to share their ideas and suggestions. This can lead to innovative solutions and improvements in processes, products, and services.

• Positive Work Environment:

Internal marketing creates a positive workplace culture that encourages collaboration, respect, and support. A positive work environment contributes to employee well-being, satisfaction, and overall organizational performance.

Examples of Internal Marketing:

• Zappos:

Zappos is well-known for its strong internal marketing initiatives. The company places a significant emphasis on employee culture, providing extensive training programs and fostering a supportive environment. Employees are encouraged to embody the company’s core values, which ultimately enhances customer service.

• Google:

Google implements internal marketing by creating an engaging and innovative workplace culture. The company offers employees various benefits, including professional development opportunities and flexible work arrangements. This investment in employee satisfaction results in high levels of productivity and creativity.

• Starbucks:

Starbucks focuses on internal marketing by referring to its employees as “partners.” The company provides extensive training programs, offers benefits such as healthcare and stock options, and fosters a sense of community among employees. This approach enhances employee engagement and results in exceptional customer experiences.

• Southwest Airlines:

Southwest Airlines emphasizes internal marketing through its commitment to employee happiness. The company encourages open communication and provides opportunities for team-building and recognition. Happy employees lead to better customer service, contributing to the airline’s success.

• IBM:

IBM invests in internal marketing by prioritizing employee training and development. The company provides ongoing learning opportunities and encourages employees to share their ideas and feedback. This focus on employee growth leads to increased innovation and customer satisfaction.

• Salesforce:

Salesforce implements internal marketing initiatives by promoting a culture of transparency and collaboration. The company invests in employee well-being, offers professional development programs, and encourages open communication. This approach fosters employee engagement and loyalty, enhancing customer interactions.

White labeling is when a product or service removes their brand and logo from the end product and instead uses the branding requested by the purchaser.

For example, if you go to a grocery store such as Walmart, you’ll notice that you can buy all sorts of products that are sold under the Great Value brand. Does this mean that Walmart is producing all of those products? No way! They simply have various companies that already provide those products and are willing to put the product in Great Value packaging instead of their own on Walmart’s behalf.

So when you go to Walmart and pick up a Great Value product, take a look around. The brand that is providing the white labeled Great Value product could also have the product sitting on the same shelf in its own packaging at the higher price.

The vendor company develops a “plug-and-play” product for your business, for instance, a white label advertising platform that’s seamlessly tailored to suit your brand. Then, you have to “decorate” the product to match your corporate identity. With the help of White Label, you can add your company’s name, logo, icons, URLs, corporate emails, components of the text and some elements of the website to align them with your brand comfortably. After full customization, you will be ready to turn your white label sales right away, on your own conditions.

Businesses need White Label Solutions

Very few companies can afford own solution development from scratch. Using a ready-made software allows partners to launch their own brand based on existing technology, taking into account all the high standards and novelties of the industry.

All technical issues associated with white label platform development, as well as further support and maintenance, are entirely outsourced to the white label company. As a result, the brand receives the product which is made in accordance with technical requirements set before implementation.

In practice, the white label approach works well for businesses across different verticals and industries. Saving money, time, and technical platform management are not the only reasons why you might want to launch your own platform. White Label solution is often developed for the number of less obvious reasons:

• The business intends to focus primarily on brand building or developing innovative customer serving strategies.
• Production requires a special registration or licensing.
• The company intends to deploy a unique solution which is better adjusted to the brand’s purposes, objectives, customer serving process, etc.
• The brand wants to see particular technical features that cannot be found in any other platforms.
• The brand wants to launch own white label business to save a share of media-buying costs typically spent on commissions paid to technology providers.
• The brand wants to enter a new market and win the competition in the new segment and has a vision on how to capture their aim applying a unique piece of technology.
• The company is very small or has only head stuff on a team. Still, it has the necessary funds to start a business asap.
• The company doesn’t want to put quality at risk developing the new platform and simply acquires technology that their team tried and liked before.

Why brands use White Label solutions?

The white labeling definition is quite self-descriptive, think of it metaphorically: the white label company gives you the blank piece of paper where you can write whatever you want and start your own brand immediately.

Instead of reinventing the wheel, going through trial and errors, wasting precious time and money, brands choose a simpler option: the White Label Solution. These are the main benefits that you obtain launching WL products:

1. It’s all under your brand’s control

The first and the most solid advantage is that you have your own freshly-baked brand that you can build on ready-made software. Unlike renown franchise scheme when you use someone else’s name, White Label allows you to create a unique product, launch your own capitalization service model, and start winning the digital advertising world with it as a business owner. There’s more to it, by rebranding a white label product as your own, you are reinforcing your trademark alongside with reputation.

2. It’s quick and easy to deploy

White label solutions are ready-made, fully tailored solutions that make branding very simple. Through a partnership with a vendor, advertisers get to the market faster and provide customers with a solution immediately. Furthermore, such a solution is exceptional from the point of customization. In case it comes up to your mind, that this or that function might come handy in the programmatic platform, white label solution developers will always help to make that idea of your come true.  

3. It’s cost and time-efficient

If you decide to build your own product from scratch, it may cost you time training existing employees or recruiting new in-house talents. Apart from designing, prototyping, and development stage, crucial time should be spent for bug and A/B testing, positioning and marketing promotion. By using an already-polished product from the white label service provider, you get a chance to save up budgets on research & development.

4. It lets you do what you do best

Forced to do something that’s outside their competencies, the brands often achieve poor and unsustainable results. Enthusiasm is a good thing but in software development experience really matters more. White Label Solution is not a raw script that needs to be retouched or finalized with no guarantee that it will work in the end. A white-labeled platform is a ready-to-use platform that can generate income right away. It undergoes revisions, tests and if something goes wrong, your vendor takes full responsibility for fixing.

5. Your customers will be grateful

Proved, With White Label Solution advertisers, can attract loyal customers and build stronger relations with consumers. Here’s why. You need to understand that your customers have needs and they’re searching for easy and straightforward ways to satisfy them. If they find these ways elsewhere, they won’t wait until you develop your own. The White Label Solution lets you dodge the ‘lost customers pit‘ by choosing prepackaged, immediate implementation options.

Advantages of Front Facing vs. Back-End White Label Solutions

1. Fewer Layers

Have you ever been given the run around? You hear that the person has to ask another person, then that person has to ask another person to get your answer. You wait a few days for the answer to discover that they still don’t know. This is very bad for customer experience.

When providing a front-facing service, if the customer asks a technical question related to the marketing campaigns that we’re managing for them, then we’re already on the phone to answer for them right at that moment! Less waiting for our customers simply means better communication and ultimately better results as work is accomplished more quickly.

2. Easily Scalable

It doesn’t matter if you have one client or 5,000 clients. With the front facing model, you’re able to scale this without bringing in middleman Account Executives to manage communication. The only thing you’ll have to worry about on a regular basis is billing the client!

3. Better Customer Life Time Value (LTV)

Retention of a customer’s business is one of the most important Key Performance Indicators (KPIs) that we measure! We have constantly proven when we are front-facing with a client, we are able to retain their business a lot longer! Our average retention rate is measured in years, compared to the industry standard of only holding on to a client for months. As of the writing of this article, our average client sticks with us for three and a half years. Of course we have plenty of clients that are with us a lot longer and some clients that only stick for two months, but our high average is the key to our and your success.

4. You Get to Focus on What You’re Good At

Whether you’re good at SEO and want us to take care of the other services, or you’re a traditional agency that needs a digital partner, or you’re simply a sales organization that wants a partner they can believe in, you get to focus on what you’re good at, and leave the day to day management of the services we’re providing on your behalf to us.

Product Conception

Like other products and services, insurance product life-cycle management begins when a company comes up with an idea for a new life and annuity product and develops a concept for it. Companies determine the target market, using their store of data to anticipate customer needs and how the proposed product might fit those needs. Because the insurance market is so segmented, life and annuity products generally are tailored to specific ranges. A policy that emphasizes its ability to cover the cost of higher education, for example, would be conceived as being geared toward parents at the age when research shows they begin worrying about paying for those costs. The policies might be rolled out in test markets as a proof-of-concept exercise to show there’s enough potential in the idea to move forward.

Managing Growth

Once an insurance company determines that a new life or annuity policy is viable, it looks to develop sales via an aggressive marketing campaign and continued refinement of the product to meet demonstrated needs. By collecting the data from its existing customer base, it can determine the demand factors and target its marketing more efficiently. If it’s an affordable policy designed as an introduction to life insurance for college-aged students, a company might seek to market on campuses. If it’s an annuity with a similar strategy of introducing new customers to the market, a company also might target customers just under the usual age range for such products. As the target market becomes more familiar with the products, sales can be expected to rise.

Reaching Maturity

Insurance is a competitive business, and competitive advantages tend not to linger. As other agencies see a new product from a rival company is gaining traction, they can be expected to develop something similar to market to their own customers. This crowds the market and leads to both costs and innovative pressures. One agency might elect to offer introductory policies at a lower cost, while others may add elements to their offerings that are difficult for others to match. Growth slows or stops as more and more of the target market commits to a policy, and marketing strategies may become more focused on getting customers to switch providers rather than introducing them to the concept.

Decline Phase

As the market changes and the providers increase, the popularity of a policy will decline. As the initial group of customers ages out of the target market, insurance companies may find that the next group has different needs and expectations that require a new product to serve them. This serves as a signal for an agency to focus on changing the existing products to meet these needs or developing new offerings to better serve the market.

Client Management

Both life and annuity needs change over time, and an insurance agency must be conscious of remaining on top of the differing needs of its customers to ensure that their business relationship doesn’t end when the clients’ need for that particular policy does. A young couple with two young children, for example, has different life insurance needs than a couple pondering retirement whose children are grown. The former likely will be more concerned with the affordability and the amount of coverage, making sure that the family is protected if something happens to either part of the couple. The latter may instead be focused on tax advantages, ease of passing the money down to heirs or accessing some of the funds to help maintain their lifestyle.

Examples of Product Life Cycles

Many brands that were American icons have dwindled and died. Better management of product life cycles might have saved some of them, or perhaps their time had just come. Some examples:

Oldsmobile began producing cars in 1897 but the brand was killed off in 2004. Its gas-guzzling muscle-car image lost its appeal, General Motors decided.

Woolworth’s had a store in just about every small town and city in America until it shuttered its stores in 1997. It was the era of Walmart and other big-box stores.

Border’s bookstore chain closed down in 2011. It couldn’t survive the internet age.

To cite an established and still-thriving industry, television program distribution has related products in all stages of the product life cycle. As of 2019, flat-screen TVs are in the mature phase, programming-on-demand is in the growth stage, DVDs are in decline, and the videocassette is extinct.

Many of the most successful products on earth are suspended in the mature stage for as long as possible, undergoing minor updates and redesigns to keep them differentiated. Examples include Apple computers and iPhones, Ford’s best-selling trucks, and Starbucks’ coffee all of which undergo minor changes accompanied by marketing efforts—are designed to keep them feeling unique and special in the eyes of consumers.

Relevant costing attempts to determine the objective cost of a business decision. An objective measure of the cost of a business decision is the extent of cash outflows that shall result from its implementation. Relevant costing focuses on just that and ignores other costs which do not affect the future cash flows.

The underlying principles of relevant costing are fairly simple and you can probably relate them to your personal experiences involving financial decisions.

For example, assume you had been talked into buying a discount card of ABC Pizza for $50 which entitles you to a 10% discount on all future purchases. Say a pizza costs $10 ($9 after discount) at ABC Pizza and it subsequently came to your knowledge that a similar pizza is offered by XYZ Pizza for just $8. So the next time you would have ordered a pizza, you would have (hopefully) placed an order at XYZ Pizza realizing that the $50 you have already spent is irrelevant.

Relevant costing is just a refined application of such basic principles to business decisions. The key to relevant costing is the ability to filter what is and isn’t relevant to a business decision.

Relevant costs

Relevant costs are generally divided into two categories

• Future Cost: Incurred in the future based on the potential decision made. This should vary from decision option to decision option. If this does not change based on the decision, then it is an irrelevant cost (see below).
• Opportunity Cost: The cost in lost opportunity depending on the decision made.

Irrelevant costs

Yes, irrelevant costs are those that should not be considered when making a decision because they can not be changed:

• Sunk Cost: Costs that have already been paid are considered irrelevant.
• Committed Cost: A future cost that is considered irrelevant. If the future cost must be paid regardless of the decision made then it is irrelevant.

What are relevant costs that online merchants should think about?

Executive management at a company decides that they want to develop a mobile application for Android-based mobile devices. They are presented with two options by the technical team: A web application wrapped to look like a mobile application or a mobile application written for Android. Each decision has several relevant costs:

• Development Time(Future cost): How much time will it take to develop each option?
• Developer Resources(Future cost): How many people, and at what wage, are required to build each option?
• Time to Market(Opportunity cost): How much will a difference in delivery time impact sales, and what is the difference?
• Perceived Performance (Opportunity cost): Is one option better performing than the other, and what is the expected abandonment rate based on that performance difference?
• Omnichannel Marketing (Future & Opportunity cost): Can one option fit the overall brand experience better than the other, and is there a cost associated with integrating the application into the brand?

There are also irrelevant costs that should be ignored:

• Existing Website(Sunk cost): The cost of the current website, even if it were reused for the application, is irrelevant. Any cost mitigation it provides would be accounted for in development time and resources.
• Testing Software(Committed cost): Regardless of the option chosen, the same testing software will be used.
• The cost of the iOS Application(Sunk cost): Like the existing website, the cost of the iOS application is irrelevant to this decision.

Relevant Costing and Costing for Decision Making

In management accounting, notion of relevant costing has great significance because these costs are pertinent with respect to a particular decision. A relevant cost for a particular decision is one that transforms if an alternative course of action is taken. Relevant costs are also termed as differential costs. Studies have demonstrated that relevant costs will make a difference in a decision. A relevant cost only relates to a particular management decision and which will alter in the future as a result of that decision. Other theorists described that relevant costs are future costs that will differ among alternatives. The main intent of relevant costing is to determine the objective cost of a business decision. An objective measure of the cost of a business decision is the degree of cash outflows that shall result from its execution. Relevant costing focuses on just that and overlooks other costs which do not influence the future cash flows. The fundamental principles of relevant costing are quite simple and managers can perhaps relate them to personal experiences involving financial decisions.

It is stated in theoretical literature that relevant costing is a management accounting toolkit that assists management team to make decisions when they have to deal with some issues such as whether to buy a component from an external vendor or manufacture it in house?, Whether to accept a special order?, What price to charge on a special order?, Whether to discontinue a product line?, How to utilize the scarce resource optimally?. CIMA describes relevant costs as: “the costs appropriate to a specific management decision”. A study of relevant costs and benefits assists to take wise decision. In order to meet the criteria for relevancy, a cost must have two criteria that include they affect the future and they differ among alternatives. Other group of theorists asserted that the relevant costs are applicable to decision. Costs are relevant, if they direct the executive towards the decision. It will be useful, if the costs are not only relevant but also precise. Relevance and accuracy are not alike concepts. Costs may be correct and irrelevant, costs may be incorrect but it can be relevant.

Relevant information is the predicted future costs and incomes that will differ among the alternatives relevant information. Relevant costs are the costs which would change as a result of the decision under consideration, where as irrelevant costs are those which would remain unchanged by the decision. Therefore only relevant cost would be included in the investigative framework. A relevant cost is also defined as a cost whose amount will be affected by a decision being made. Management should believe only future costs and revenues that will differ under each alternative. Relevant costs are accepted future costs and relevant profits are expected future revenues that differ among the alternative course of action being considered. In the arena of Management accounting, one feature of relevant cost is that they are future costs which have not been incurred. Hence the cost of material is relevant cost as long as the material not purchased because of deciding whether or not to purchase the material, one is to decide to sustain the cost or evade it. Therefore, all relevant costs are future costs. Whether particular costs and profits are relevant for decision making depends on decision circumstance and the options available. When selecting among different alternatives, manager must focus on the costs and revenues that differ across the decisions alternatives; these are relevant cost/revenues. The relevance of cost to decision alternative is determined by situation. The facts and policies explain situation. It is established that historical cost is not relevant, only future cost is relevant. All sunk costs are irrelevant.

Application & Limitations

While relevant costing is a useful tool in short-term financial decisions, it would probably not be wise to form it as the basis of all pricing decisions because in order for a business to be sustainable in the long-term, it should charge a price that provides a sufficient profit margin above its total cost and not just the relevant cost.

Examples of application of relevant costing include:

• Competitive pricing decisions
• Make or buy decisions
• Further processing decisions

For long term financial decisions such as investment appraisal, disinvestment and shutdown decisions, relevant costing is not appropriate because most costs which may seem non-relevant in the short term become avoidable and incremental when considered in the long term. However, even long term financial decisions such as investment appraisal may use the underlying principles of relevant costing to facilitate an objective evaluation.