Aventi Bags Case: Competitive Strategies and Customer Profitability Analysis

This case study examines the viability of competitive strategies used by Ford Motor Co. and Viva Energy Group for Aventi Bags. It also recommends the best strategy for Aventi Bags and provides a customer profitability system based on Activity-Based Costing (ABC).

Running head: AVENTI BAGS CASE
Aventi Bags Case
Name
Institution

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Introduction
Sustainable competitive advantage is defined as a long-time ability to outperform
competitors in the market or industry. Aventi Bags seek to adopt a sustainable competitive
strategy that supports profitability, competitiveness, and efficiency. The common competitive
strategy used in the manufacturing industry is cost leadership, differentiation, and focus. This
section examines the viability of competitive strategy used by Ford Motor Co. and Viva
Energy Group for Aventi Bags.
a) Ford Motor Co. competitive strategy
Ford Motor Co. is a public company that trades in the New York Stock Market as
NYSE: F. The company is also listed among the S&P 100 companies. Ford is among the
leading automobile companies globally. Ford has managed to remain competitive in the
market since its establishment in 1903. The company relies on two sustainable competitive
strategies, which are low-cost leadership and product broad differentiation strategies.
However, Ford has changed its competitive strategy in line with the economic and business
dynamics in the global market. For instance, the company adopted a low-cost leadership
strategy in the 1900s (Caldicott, 2014). The strategy was adopted as it supported the
company’s low-cost production and low prices for finished automobiles. Subsequently, Ford
would attract more customers and expand its consumer base. The low-cost strategy was also
backed by the company’s vision, which focused on manufacturing automobiles that were
affordable to working-class consumers. Ford succeeded in implementing the strategy by
developing several assembly lines to maximise productivity and minimize production and
operation costs. Moreover, the company succeeded in streamlining its processes hence
reducing its costs and remaining competitive advantage (Barney, 2005).

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However, the low-cost strategy could not protect Ford from the increasing competition
from General Motors Co. General Motors Co. overtook Ford as the largest automobile
company in the global market. As a result, Ford adopted a broad differentiation strategy to
counter the increasing competition. The strategy focused on manufacturing a variety of
automobiles. Ford realised that the consumers were attracting high earnings hence turning
their attention towards better styles and design. Today, Ford has integrated both low cost and
differentiation strategies in its competitive advantage strategy plan. The broad differentiation
strategy allows Ford to compete with Toyota and General Motors through product innovation
(Caldicott, 2014).
b) Viva Energy Group (ASX: VEA)
Viva Energy Group is listed on the Australian stock exchange market as VEA. The company
operates in the Australian energy sector and specialises in the production of petroleum and
coal products. Viva is a multinational company that faces intense competition globally. The
company’s competitive advantage is based on Michael Porter’s generic model. Viva uses
different strategies such as focus, differentiation and cost leadership strategies to curb
competitive pressure. An integrated sustainable competitive advantage helps Viva to advance
its growth through product development, diversification, market development and market
penetration (Baldwin, 2015).
Viva’s cost leadership strategy is focused on easy accessibility and affordability of products
across the globe. The company focuses on low pricing of its products by lowering its cost of
production and maximising efficiency. The provision of coupons and discounts allows that
company to meets its sales targets and curb increasing competition. The objective of using
cost leadership strategy by Viva was to encourage consumption of its products, increase
brand awareness and enhance market share. Besides low-cost leadership, Viva also uses

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differential as a second sustainable competitive strategy (Baldwin, 2015). Differentiation
strategies focus on creating unique products as a way of expanding the consumer base.
Lastly, Viva also uses the focus strategy to address the competitive needs of specific markets.
The focus strategy is divided into two strategies namely best value focus and low-cost focus.
Low-cost focus strategy is meant to meet the needs of low-income earners in the niche
market segment. On the other hand, best value strategy emphasizes the design, size, and taste
of the products to match the customer needs. The three strategies have helped Viva to
maximise value, meet customer expectations and develop products that best fit the customer's
needs.
Recommended the best strategy for Aventis Bags
Aventis Bags provides a thin product line to a lean market base. The company offers
leather and leather-like bags to retail stores and corporate consumers. Corporate consumers
make limited make purchases on order basis which limits the ability of the company to
maximise its profitability level. Viva’s integrated sustainable competitive model is the best
strategy that Aventis bags should adopt because it incorporates all the three strategies, that is,
low-cost leadership, differentiation, and focus. Aventis Bags can adopt low cost strategy by
identifying low-cost raw materials. Engaging suppliers in pre-sales contracts will ensure that
raw materials are maintained at a specific price over a given even when the market price
increases. Outsourcing of cheap raw materials would also ensure that the production cost is
reduced. A reduction in raw material prices would ensure that cost price is reduced leding to
a vast sales volume (Merchant, 2014).
Aventis Bags should adopt a broad differentiation strategy. Considering that the
company is currently operating in a small market, broad differentiation would expand both
the company’s product portfolio and target market segment. For instance, manufacturing of

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bags to young children and general female markets would increase the company’s sales
volume. Lastly, best value strategy will create a design, and value to customers who do not
care for price of products as far as quality is guaranteed. Ford's policy of adopting one
strategy at a time would not work at Aventis Bags because of the current dynamics in the
business environment. Incorporating all the three strategies into a single plan is the best way
of handling the problems facing Aventis Bags (Caldicott, 2014).
Customer profitability system based on Activity-Based Costing (ABC) for Aventis Bags
Customer profitability system based on Activity-Based Costing (ABC)
Cost
Objective
Cost Pools Cost Drivers
Processing standard orders
Processing Special orders
Contacts with sales
staff
Sales Visits
Billing of customers
Packaging
Deliveries
No. of orders
No. of Special
orders
No.of contacts
No. of sales vists
No. of Invoices
No. of packaged
Cartons
No. of Deliveries
Aventi Bags
Cost
Analysis
Customer
Profitability
Analysis

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Calculating Customer profitability based on Activity Based Costing
The activity-based absorption rate is calculated by total activity cost per activity by
total orders per activity. The absorption rate is calculated as shown in the table in the
appendices section.
Activity Absorption Rate
Orders 30
Special Orders 31.7
Contacts 23
Sales Visits 173
Cartons Packaged 14
Deliveries 23
Invoices 35
The profitability for each customer segmentation is calculated as below.
MDS SDS SC MR MC SR Totals
Sales Revenue 577,200 510,600 222,000 399,600 288,600 222,000 2,220,000
Orders 7290 4860 12150 7290 9720 7290 48,600
Special Orders 5832.8 5103.7 6561.9 5832.8 6561.9 6561.9 36,455
Contacts 5083 2990 6578 3887 5083 6279 29,900
Sales Visits 19030 15224 20933 15224 13321 11418 95,150
Cartons Packaged 2548 2548 3276 2912 2912 4004 18,200
Deliveries 2484 3519 2898 3726 3933 4140 20,700
Invoices 10135.2 8868.3 11402.1 9501.75 9501.75 13935.9 63,345
Total Activity Costs 42267.8 34244.7 52396.9 38871.8 41530.9 39692.9 312,350
COGS 301,975 241,580 157,027 169,106 157,027 181,185
Total Costs 344,243 275,825 209,424 207,978 198,558 220,878
Operating Profit 232,957 234,775 12,576 191,622 90,042 1,122 763,095
Less: S&G Admin
Cost
394,350
Net Profit 368,745
Analysis of the profitability differences between Absorption rate and ABC rate
The company realised a profit of $ 617,250 under the traditional costing method,
compared to $ 368,745 under the activity-based costing method. The difference arises from
the inclusion of additional cost drivers. Moreover, Aventis Bags realise high profit from
Major Department Stores (MDS) and Smaller Department Stores (SDS) customers. On the

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other hand, Smaller Retailers market segment performed poorly; the segment generated a
profit of $1,122.

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References
Baldwin, R. E. (2015). Value creation and trade in 21st-century manufacturing. Journal of
Regional Science, 55(1), 31-50.
Barney, J. B. (2005). Looking inside for Competitive Advantage. The Academy of
Management Executive, 9(4), 49-61.
Caldicott, S. M. (2014, June 25). Why Ford's Alan Mulally Is An Innovation CEO For The
Record Books. Retrieved from Forbes:
hhttp://www.forbes.com/sites/sarahcaldicott/2014/06/25/why-fords-alan-mulally-is-
an-innovation-ceo-for-the-record-books/
Merchant, H. (2014). Configurations of governance structure, generic strategy, and firm size.
Global Strategy Journal, 4(4), 292-309.
Appendices
a) Absorption rate
No. of Special
Orders
184 161 207 184 207 207 36500 1150 31.73913043
No. of Contacts 221 130 286 169 221 273 29900 1300 23
No. of Sales
Visits
110 88 121 88 77 66 95150 550 173
No. of Cartons
Packaged
182 182 234 208 208 286 18200 1300 14
No. of
Deliveries
108 153 126 162 171 180 20700 900 23

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No. of Invoices 288 252 324 270 270 396 63345 1800 35.19166667