As a basis for customer segmentation, a Cost Driver is a need of some group of customers that, when met, raises the cost per unit of the supplier. Physical, emotional or intellectual characteristics of the customer are the major Cost Drivers.
One firm states that it chose Schwab over Fidelity to run its retirement plan business because Schwab's self-directed trading option, giving workers the ability to buy and sell stocks, was more automated than Fidelity's. (Year 1996-SIC 6211)
Explanation:The requirement to automate the self-directed trading was a Cost Driver for Schwab's business. Schwab's acceptance of this cost enabled it to win this customer in competition with Fidelity.
LA Gear purchases Ryka shoes. Ryka shoes are designed specifically for a woman's foot — Ryka has a small but loyal following. LA Gear hopes to expand its product line. (Year 1995-SIC 3949)
Explanation:Adapting shoes to the specific sizing requirements of a woman's foot was a major Cost Driver in the shoe industry. Rika exploited this Cost Driver by incurring costs that enabled its shoes to work better than those of its competitors.
Kraft introduced new DiGiorno Rising Crust Pizza. The crust rises and tastes fresher than usual frozen pizzas. (Year 1996-SIC 2000)
Explanation:A segment of consumers preferred fresher-tasting rising crusts. Kraft incurred the expense required to create rising crusts in frozen pizzas. The consumer's preference for this rising crust was a Cost Driver in the frozen pizza industry.
Enterprise Rent-a-Car has vaulted to the top tier of the US car-rental industry by redefining what it means to rent a car. It provides vehicle delivery in most markets and customer pick-up service in all markets. (Year 1995-SIC 7514)
Explanation:Some customers in the auto rental industry live or work at some distance from the rental car locations. This distance is a Cost Driver for the industry. Enterprise incurred the cost of customer pick-up and delivery in order to take advantage of this industry Cost Driver.
U.S. apparel manufacturers use computerized inventory and ordering networks to create powerful networks that tie together domestic mills, truckers, cutters and customers. Result: U.S. mills can deliver fabric in one-third the time it takes to come from Taiwan. (Year 1987-SIC 2389)
Explanation:A segment of textile purchasers requires short order cycle times in order to compete in their own industries. The requirement for a short order cycle time is a significant Cost Driver to serve this customer segment. The U.S. mills took advantage of this Cost Driver by making investments that enabled them to deliver fabric in significantly less time than could their less expensive, but longer lead time, competition.