Product differentiation

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Product differentiation

• Session 11

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Business level strategy
Strategic advantage
Uniqueness Low cost position
Industrywide
Strategic Target
FOCUS
Specific segment
Source Michael Porter
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(No Transcript)
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Differentiation

• Offers something unique that is valuable to
  buyers beyond low price
• Differentiation higher profits come from
  buyers willingness to pay more
• Cost Leadership higher profits come from firms
  abilities to reduce costs

P-C
C
P Prices CCosts
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Bases of product differentiation

• Product attributes
• Exploiting the product itself
• Firm customer relationships
• Exploiting relationships with customers
• Firm linkages
• Exploiting linkages within and between firms

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Bases of Differentiation
Product Attributes
Product Features the shape of a golf club head
Product Complexity multiple functions on a
watch
Timing of Introduction being the first to
market
Location locating next to a freeway exit
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Bases of Differentiation
Firm-Customer Relationships
Customization creating a unique diamond
bracelet for a customer
Consumer Marketing creating brand loyalty to
a soap through image advertising
Reputation sponsoring the local homeless
shelter to engender positive community
response
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Bases of Differentiation
Firm Linkages
Linkages among Functions in the Firm using
a circuit board designed in one division in
other divisions
Linkages with other Firms a sporting goods
store sponsors a benefit race by donating
running shoes and receives free radio
advertising in return
Product Mix a furniture store begins to
sell home gym equipment, computers, and lawn
mowers
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Bases of Differentiation
Firm Linkages
Distribution Channels a doughnut shop begins
to sell its doughnuts through gas stations
Service and Support an oil change shop
begins to offer pick up and delivery of cars
in an office buildings parking garage
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Business level strategy

• Differentiation
• Value by neutralizing threats
• 5-Forces model (protected through
  differentiation, brand loyalty)
• Opportunities
• Market consolidation, first mover advantage,
  product refinement, exploiting niches
• Disadvantages
• Need to maintain uniqueness
• Imitation
• Changes in consumer tastes and demands

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Imitability of Product Differentiation
Product Features
Easy
Duplication of Bases
Timing
Product Mix
May be Costly
Usually Costly
Location
Product complexity
Reputation
Links with other firms
Links between functions
Product customization
Distribution Channels
Consumer marketing
Service and Support
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Organizing for Product Differentiation
Organizational Structure
Management Controls
Compensation Policies
Reward
flexibility
U-Form with cross-functional teams
cross- functional cooperation
broad guidelines
creativity encouraged
creativity
risk taking
Example Ford Taurus Cross-Functional Teams
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Business level strategy

• Cost leadership and differentiation
• Production and process technology
• Flexible manufacturing systems
• Stuck in the middle
• Importance of FIT capabilities and strategy
• Align product/technology/market choices with
  strategy