chapter 5 product differentiation Flashcards
(24 cards)
Product differentiation
is a business strategy where firms attempt to gain a competitive advantage by increasing the perceived value of their products or services relative to the perceived value of other firms’ products or services.
Business level strategies is how
to position a business in a market
2 types of business level strategies
- cost leadership
2.product differentiation
corporate level strategies are which
business to enter
3 bases of product differentiation
- focusing on product attributes
2.focusing on customer relationships
3.focusing on links within and between firms
Focusing on product attributes - 4
o Product Features: Modifying features to stand out (the shape of a golf club head).
o Product Complexity: Differentiation through the complexity of design (multiple functions on a watch).
o Timing of Product Introduction: Being the first or introducing at the right moment can create an advantage (e.g., Microsoft’s MS-DOS).
o Location: Physical location can enhance product appeal (locating next to a freeway exit)
Focusing on customer relationships - 3
o Product Customization: Tailoring products to specific needs (e.g., enterprise software).
o Consumer Marketing: Changing marketing strategies to influence perceptions (e.g., Mountain Dew’s rebranding).
o Reputation: Building a strong brand reputation influences customer perceptions (e.g., MTV’s risk-taking reputation)
Focusing on Links within and between firms - 5
o Linkages Between Functions: Integrating functions within a firm for better product development (e.g., pharmaceutical research).
o Links with Other Firms: Collaborating with other companies for mutual benefit (e.g., NASCAR sponsorships).
o Product Mix: Offering a mix of products that are technologically linked or cater to a common customer base (e.g., shopping malls).
o Distribution Channels: Different distribution methods can create differentiation (e.g., Coca-Cola vs. Canada Dry).
o Service and Support: Level of customer service can set products apart (e.g., high vs. low support in PC companies)
VRIO
- Is it valuable
2.is it rare
3.is it costly to imitate
4.is the firm organized to exploit it
Valuable differentiation enables firms to
neutralize threats and exploit opportunities
firsm maximize profit by producing where
marginal costs equals marginal revenue
if average total cost is less then the price
economic profit exists, representing a competitive advantage
reducing 5 threats
o New Entry: Differentiation raises entry barriers, requiring potential entrants to overcome existing advantages.
o Rivalry: Firms carve unique niches, reducing direct competition for the same customer base.
o Substitutes: Differentiation makes current products more appealing compared to substitutes.
o Powerful Suppliers: Firms with differentiated products can better absorb supplier price increases due to customer loyalty.
o Powerful Buyers: A unique product offering leads to a quasi-monopoly, diminishing buyer power.
Environmental opportunities
- fragmented industries: Differentiation can help consolidate markets (e.g., Xerox in office paper
- emerging industries:First mover advantages: captures market share
- Mature Industry: Refining product or adding services
Example: Ford’s emphasis on service - Declining Industry
Exploiting niches: serving those with strong needs
Example: NEWT at the Royal Hawaiian
Rareness of Product Differentiation
by definition we assume rareness if a product is differentiated it is rare enough
Valuable and rare bases must be costly to
imitate for sustained advantage
3 sources of cost of imitation
- history
2.uncertainty
3.social complexity
easy to duplicate low cost of the bases 1
product features gives temporary advtantage ex. patents
may be costly to imitate/duplicated 5
o Product Mix: Difficult to replicate if products are highly integrated.
o Links with Other Firms: Complex relationships can be costly to replicate.
o Product Customization: Depends on trust and relationships with customers.
* product complexity
o Consumer Marketing: Often easy to duplicate unless a campaign creates significant buzz.
usually costly to duplicate of bases 6
o Linkages Across (between firms) Functions: Requires social complexity and cooperation within the firm.
o Timing: Unique histories and resources create advantages that are hard to replicate.
o Location: Unique locations can lead to sustained advantages.
o Reputation: Built over time through consistent investment in customer relationships.
o Distribution Channels: Limited supply and complex relationships make duplication costly.
o Level of Service and Support: High-quality service requires investment and a customer-centric culture.
organizing for product differentiation
- organizational structure
*management controls
*compensation policies
organizational structure
*uform
*cross divisional cross functional product development team
*complex matric structure
*isolated pockets of intense creative efforts:skunk works
management control systems
1.broad decision making guidelines
2.managerial freedom with guidelines
3.a policy of experimentation
compensation policies
1.reward for risk tasking not punishment for failures
2.rewards for creative flair
3.multidimensional performance measures
