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Barney smca4 05

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    Barney smca4 05 Barney smca4 05 Presentation Transcript

    • Chapter 5 Product DifferentiationCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall. 5-1
    • Product Differentiation The Strategic Management Process External Analysis Strategic Strategy CompetitiveMission Objectives Choice Implementation Advantage Internal Analysis Business Level Corporate Level Strategy Strategy How to Position a Which Businesses Business to Enter? in the Market? Copyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-2 2
    • Product Differentiation Business Level Strategies Two Generic Business Level Strategies Cost Leadership: • generate economic value by having lower costs than competitors Example: Wal-Mart Product Differentiation: • generate economic value by offering a product that customers prefer over competitors’ product Example: Harley-DavidsonCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-3 3
    • Product Differentiation Product Differentiation A business level strategy intended to: • increase the perceived value of the focal firm’s products and/or services relative to the value of competitor’s products and/or services • create a customer preference for the focal firm’s products and/or servicesCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-4 4
    • Product Differentiation Bases of Differentiation A base of differentiation must fill some customer need: • image • beauty • safety • furthering a cause • hunger • status • quality • reliability in use • comfort • style • service • nostalgia • cleanliness • taste • accuracy • belonging A differentiated product fills one or more needs better than the products of competitorsCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-5 5
    • Product Differentiation Bases of Differentiation Almost anything can be a base of differentiation • the wide range of customer needs can be filled by 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 creativity Example: Fred Smith and FedExCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-6 6
    • Product Differentiation Bases of Differentiation Three Categories 1) Product Attributes • exploiting the actual product 2) Firm—Customer Relationships • exploiting relationships with customers 3) Firm Linkages • exploiting relationships within the firm and/or relationships with other firmsCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-7 7
    • Product Differentiation 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 exitCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-8 8
    • Product Differentiation 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 responseCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-9 9
    • Product Differentiation 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 mowersCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-10 10
    • Product Differentiation 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 building’s parking garageCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-11 11
    • Product Differentiation Competitive Advantage A product differentiation strategy must meet the VRIO 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.Copyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-12 12
    • Product DifferentiationThe Value of Product Differentiation Neutralizing Threats Toyota protected from Hyundai Entry Chrysler’s Industry Allen Edmonds Buyers Rivalry Crossfire & Cole Hahn Focal Firm Threat Home vs. Photo Ruth’s Chris Substitutes Suppliers Shop Printing of Steak House Digital PicturesCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-13 13
    • Product Differentiation The Value of Product Differentiation Focal Firm with No Focal Firm with Differentiated Product Differentiated Product MCff Pff ATCind ATCffPind Dind Dff MRff Qind Qff Above Normal Profits Copyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-14 14
    • Product DifferentiationThe Value of Product Differentiation Exploiting Industry-type Opportunities Fragmented Industry Branding: commodity differentiated product Example: Kellogg’s Corn Flakes Emerging Industry First mover advantages: captures market share Example: Motorola Cell PhonesCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-15 15
    • Product DifferentiationThe Value of Product Differentiation Exploiting Industry-type Opportunities 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 HawaiianCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-16 16
    • Product DifferentiationThe Value of Product Differentiation Exploiting Other Opportunities Trends or Fads Social Causes • spinners • themed credit cards • surf clothing • animal safe clothing Government Policy Economic Conditions • Toyota Prius • outplacement agencies • airport x-ray machines • check cashing servicesCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-17 17
    • Product Differentiation Rareness of Product Differentiation By definition, we assume rareness • if a product is differentiated, it is rare enough • customer preferences are evidence of a differentiated product • increased volume of purchases • and/or a premium priceCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-18 18
    • Product Differentiation Imitability of Product Differentiation Logic of costs of imitation • if would-be imitators face a cost disadvantage of imitation, they will rationally choose not to imitate Sources of costs of imitation • historical uniqueness • causal ambiguity • social complexityCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-19 19
    • Product Differentiation Imitability of Product Differentiation Product Features Easy Duplication of Bases Timing Product Mix Usually May be Location Product complexity Costly Costly Reputation Links with other firmsLinks between functions Product customization Distribution Channels Consumer marketing Service and Support Copyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-20 20
    • Product Differentiation Imitability of Product Differentiation Substitutes • some substitutes may be obvious • some substitutes may not be obvious • if no substitutes are obvious, then we would conclude that imitation through substitution will be costly—at least for the present time • if a base of differentiation is valuable, others will attempt to imitate it through duplication and/or substitutionCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-21 21
    • Product Differentiation Organizing for Product DifferentiationOrganizational Management Compensation Structure Controls Policies• U-Form with • flexibility Reward: cross-functional • cross- teams • broad guidelines functional cooperation • creativity encouraged • creativity • risk taking Example: Ford Taurus Cross-Functional Teams Copyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-22 22
    • Product DifferentiationCost Leadership and Product Differentiation Can a firm pursue both simultaneously? No Yes • use of structure, • firms can do both management control, because some bases and compensation of differentiation also policies are nearly lend themselves to opposites low cost • structure, controls, & policies are not opposites Example: Rolex Example: ToyotaCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-23 23
    • Product Differentiation Summary • 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 the VRIO criteria may generate competitive advantage • a product differentiation strategy is only as good as its implementation Product differentiation principles can be applied to your personal and professional lives.Copyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-24 24
    • Product Differentiation The Value of Product Differentiation Focal Firm with No Focal Firm with Differentiated Product Differentiated Product MCff Pff ATCind ATCffPind Dind Dff MRff Qind Qff Above Normal Profits Copyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-25 25
    • Product Differentiation All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright ©2012 Pearson Education, Inc. publishing as Prentice HallCopyright © 2012 Pearson Prentice Hall. Management & Competitive Advantage – Barney & Hesterly Strategic All rights reserved. 5-26 26