2 The Strategic Management Process ExternalAnalysisStrategicChoiceStrategyImplementationCompetitiveAdvantageMissionObjectivesInternalAnalysisBusiness LevelStrategyCorporate LevelStrategyHow to Position aBusinessin the Market?Which Businessesto Enter?
3 Business Level Strategies Two Generic Business Level StrategiesCost Leadership:• generate economic value by having lower coststhan competitorsExample: Wal-MartProduct Differentiation:• generate economic value by offering a productthat customers prefer over competitors’ productExample: Harley-Davidson
4 Product Differentiation A business level strategy intended to:• increase the perceived value of the focalfirm’s products and/or services relativeto the value of competitor’s products and/orservices• create a customer preference for the focal firm’sproducts and/or services
5 Bases of Differentiation A base of differentiation must fill somecustomer need:• image• beauty• safety• furthering a cause• hunger• status• quality• reliability in use• comfort• style• service• nostalgia• cleanliness• taste• accuracy• belongingA differentiated product fills one or more needsbetter than the products of competitors
6 Bases of Differentiation Almost anything can be a base of differentiation• the wide range of customer needs can be filledby a wide range of bases of differentiation• tangible thing (product features, location, etc.)• intangible concept (reputation, a cause, an ideal, etc.)• limited only by managerial creativityExample: Fred Smith and FedEx
7 Bases of Differentiation Three Categories1) Product Attributes• exploiting the actual product2) Firm—Customer Relationships• exploiting relationships with customers3) Firm Linkages• exploiting relationships within the firmand/or relationships with other firms
8 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
9 Firm-Customer Relationships Bases of DifferentiationFirm-Customer Relationships• Customization – creating a unique diamond braceletfor a customer• Consumer Marketing – creating brand loyalty to a soapthrough image advertising• Reputation – sponsoring the local homeless shelterto engender positive community response
10 Bases of Differentiation Firm Linkages• Linkages among Functions in the Firm – using acircuit board designed in one division in otherdivisions• Linkages with other Firms – a sporting goods storesponsors a benefit race by donating running shoesand receives free radio advertising in return• Product Mix – a furniture store begins to sellhome gym equipment, computers, and lawn mowers
11 Bases of Differentiation Firm Linkages• Distribution Channels – a doughnut shop begins tosell its doughnuts through gas stations• Service and Support – an oil change shop beginsto offer pick up and delivery of cars in anoffice building’s parking garage
12 Competitive Advantage A product differentiation strategy must meet theVRIO criteria…Is it Valuable?Is it Rare?Is it costly to Imitate?Is the firm Organized to exploit it?…if it is to create competitive advantage.
13 The Value of Product Differentiation Neutralizing ThreatsToyota protected from HyundaiEntryChrysler’sCrossfireIndustryAllen Edmonds& Cole HahnBuyersRivalryFocalFirmThreatHome vs. PhotoShop Printing ofDigital PicturesRuth’s ChrisSteak HouseSuppliersSubstitutes
14 The Value of Product Differentiation Focal Firm with NoDifferentiated ProductFocal Firm withDifferentiated ProductMCffPffATCindATCffPindDindDffMRffQindQffAbove NormalProfits
15 The Value of Product Differentiation Exploiting Industry-type OpportunitiesFragmented IndustryBranding: commoditydifferentiated productExample: Kellogg’s Corn FlakesEmerging IndustryFirst mover advantages: captures market shareExample: Motorola Cell Phones
16 The Value of Product Differentiation Exploiting Industry-type OpportunitiesMature IndustryRefining product or adding servicesExample: Ford’s emphasis on serviceDeclining IndustryExploiting niches: serving those with strong needsExample: NEWT at the Royal Hawaiian
17 The Value of Product Differentiation Exploiting Other OpportunitiesTrends or Fads• spinners• surf clothingSocial Causes• themed credit cards• animal safe clothingGovernment Policy• Toyota Prius• airport x-ray machinesEconomic Conditions• outplacement agencies• check cashing services
18 Rareness of Product Differentiation By definition, we assume rareness• if a product is differentiated, it is rareenough• customer preferences are evidence ofa differentiated product• increased volume of purchases• and/or a premium price
19 Imitability of Product Differentiation Logic of costs of imitation• if would-be imitators face a cost disadvantageof imitation, they will rationally choose not toimitateSources of costs of imitation• historical uniqueness• causal ambiguity• social complexity
20 Imitability of Product Differentiation Product FeaturesEasyDuplicationof BasesTimingProduct MixUsuallyCostlyMay beCostlyLocationProduct complexityReputationLinks with other firmsLinks between functionsProduct customizationDistribution ChannelsConsumer marketingService and Support
21 Imitability of Product Differentiation Substitutes• some substitutes may be obvious• some substitutes may not be obvious• if no substitutes are obvious, then we wouldconclude that imitation through substitutionwill be costly—at least for the present time• if a base of differentiation is valuable, otherswill attempt to imitate it through duplicationand/or substitution
22 Organizing for Product Differentiation OrganizationalStructureManagementControlsCompensationPolicies• U-Form withcross-functionalteams• flexibilityReward:• cross-functionalcooperation• broad guidelines• creativityencouraged• creativity• risk takingExample: Ford Taurus Cross-Functional Teams
23 Cost Leadership and Product Differentiation Can a firm pursue both simultaneously?NoYes• use of structure,management control,and compensationpolicies are nearlyopposites• firms can do bothbecause some basesof differentiation alsolend themselves tolow cost• structure, controls, &policies are not oppositesExample: RolexExample: Toyota
24 Implementing Differentiation Internationally GlobalMulti-Domestic• standardized product• non-standard product• high variance intastes & preferences• little variance intastes & preferences• decentralized control• centralized control• focused on efficiency• focused on satisfyingtastes & preferencesExample: SonyExample: Siemens
25 Implementing Differentiation Internationally Business-level and International Expansion StrategiesGenerally, but not always…• structure, control, & compensation policies aresimilar as follows:Cost leadershipGlobal(international integration, efficiency)Product differentiationMulti-domestic(local responsiveness)
26 Summary Product differentiation principles can be • product differentiation creates customer preferences• preferences allow firms to make above normal profits• almost anything can be a base of differentiation• bases of product differentiation that meet theVRIO criteria may generate competitive advantage• a product differentiation strategy is only as goodas its implementationProduct differentiation principles can beapplied to your personal and professional lives.
27 The Value of Product Differentiation Focal Firm with NoDifferentiated ProductFocal Firm withDifferentiated ProductMCffPffATCindATCffPindDindDffMRffQindQffAbove NormalProfits
Your consent to our cookies if you continue to use this website.