Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 35

Cost Structure of Retailers; The Internet Today’s retailers are finding that online sales and service are a necessary ingredient of their overall marketing and selling strategy because of increased competition. In certain retail sectors, consumers are moving to the Internet in large numbers for the convenience and selection they find on the Internet. Unfortunately, the investment in resources, both equipment and labor, can be huge. Some studies show that less than a third of online retailers are profitable on Internet sales. As a result, some new consulting firms, software firms, and service providers have begun to provide e-commerce solutions for retailers.

Required

1. How does a consulting firm, service provider, or software firm help a retailer reduce cost and become more competitive for Internet sales? What is the role of operating leverage in the retailer’s decision to outsource online sales and service?

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2. What role if any does globalization play in a retailer’s efforts to reduce costs on Internet sales?

Step 1 of 3

Operating leverage refers to the extent of fixed costs in a company’s cost structure. It defines the composition of the fixed cost in a companies’ cost structure. The degree of operating leverage is the measure of sensitivity at any given level.