Product differentiation

Question 1

Product differentiation

Answer 1

A business strategy where firms attempt to gain a competitive advantage by increasing the perceived value pf their products or services relative to the perceived value of other firms’ products or services. The other firms can be rivals, other rivals are firms with substitute products or services.

Question 2

Bases of product differentiation (product attributes)

Answer 2

1. Product features
2. Product complexity
3. Timing of product introduction
4. Location

Question 3

Bases of product differentiation (customer relationship)

Answer 3

1. Product customization
2. Consumer marketing
3. Product reputation

Question 4

Bases of product differentiation (linkages between firms)

Answer 4

1. Linkages among functions within a firm
2. Linkages with other firms (explicit linkages between one firm’s products and the products and services of other firms)
3. Product mix
4. Distribution channels
5. Service and support

Question 5

Organizational structure product differentiation

Answer 5

A firm with a product differentiation strategy has a cross-divisional or cross functional development team and often consists of a complex matrix structed. They have isolate pockets of intense creative efforts: skunk works.

The management control system has broad decision-making guidelines, and the managers have freedom within the guidelines. There is a policy of experimentation.

In product differentiation firms, employees are rewarded for taking risks and are not punished for their failures. The employees get rewarded for their creative flair and there is a multidimensional performance measurement.

Question 6

Can firms implement cost leadership and product differentiation simultaneously? (YES)

Answer 6

It is worth noting that recent work contradicts this statement and believes that these strategies can be implemented simultaneously. Firms that successfully have implemented a product differentiation strategy can later on focus on cost leadership because a product differentiation leads to an increase in the sales volumes, which can lead to economies of scale for the firm. This way both cost leadership and product differentiation can be implemented in the strategy simultaneously.

Question 7

Can firms implement cost leadership and product differentiation simultaneously? (NO)

Answer 7

No, these strategies cannot be implemented simultaneously. This is because of the organizational structure, management control systems and compensation policies as discussed previously differ to much from each other for firms to implement both these strategies.