Differentiation AdvantageDifferentiation Advantage
• The nature of differentiation
• Differentiation and segmentation
• An...
The Nature of DifferentiationThe Nature of Differentiation
TOTAL CUSTOMER RESPONSIVENESS
Differentiation not just about th...
Differentiation and SegmentationDifferentiation and Segmentation
DOES DIFFERENTIATION IMPLY SEGMENTATION?
—Not necessarily...
Differentiation and the Product Life CycleDifferentiation and the Product Life Cycle
New packages of hardware
and software...
Analyzing the Demand SideAnalyzing the Demand Side
Techniques for analyzing product attributes and
positioning:
• Multidim...
Differentiation in Pain Relievers:
Multidimensional Scaling of Competing
Products in the U.S.
Differentiation in Pain Reli...
Identifying Differentiation Potential:
The Demand Side
Identifying Differentiation Potential:
The Demand Side
THE PRODUCT
...
SYSTEM PRODUCT
SERVICE COMMODITY
SUPPORT
(SOFTWARE)
Differentiated Undifferentiated
Differentiated
MERCHANDISE
(HARDWARE)
...
Consistency of Differentiation Strategy:
Product Integrity
Consistency of Differentiation Strategy:
Product Integrity
Key ...
Producer’s strategies
High quality Low quality
High 7 10
Consumer’s price 7 -5
strategies
Low -5 3
price 10 3
Note: In eac...
The Impact of Quality on ProfitabilityThe Impact of Quality on Profitability
Low 25% 60% High
Relative market share
Relati...
Using the Value Chain to Identify
Differentiation Potential on the Supply Side
Using the Value Chain to Identify
Different...
Identifying Differentiation Opportunities through
Linking the Value Chains of the Firm and its
Customers: Can Manufacture
...
Upcoming SlideShare
Loading in …5
×

Ch09

733 views
588 views

Published on

Published in: Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
733
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
52
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Ch09

  1. 1. Differentiation AdvantageDifferentiation Advantage • The nature of differentiation • Differentiation and segmentation • Analyzing differentiation: the demand side • Analyzing differentiation: the supply side • Bringing it all together: value chain analysis OUTLIN E
  2. 2. The Nature of DifferentiationThe Nature of Differentiation TOTAL CUSTOMER RESPONSIVENESS Differentiation not just about the product, it embraces the whole relationship between the supplier and the customer. INTANGIBLE DIFFERENTATION Unobservable and subjective characteristics that appeal to customer’s image, status, identity, and desire for exclusivity TANGIBLE DIFFERENTATION Observable product characteristics: • size, color, materials, etc. • performance • packaging • complementary services DEFINITION: “Providing something unique that is valuable to the buyer beyond simply offering a low price.” (M. Porter) THE KEY IS TO CREATE VALUE FOR THE CUSTOMER
  3. 3. Differentiation and SegmentationDifferentiation and Segmentation DOES DIFFERENTIATION IMPLY SEGMENTATION? —Not necessarily, depends upon the differentiation strategy: BROAD SCOPE DIFFERENTIATION Appealing to what is common between different customers (McDonalds, Honda, Gillette) FOCUSED DIFFERENTIATION Appealing to what distinguishes different customer groups (MTV Harley-Davidson, Ralph Lauren) DIFFERENTIATION: is concerned with how a firm distinguishes its offerings from those of its competitors (i.e. How the firm competes) SEGMENTATION: is concerned with which customers, needs, localities a firm targets (i.e. Where the firm competes)
  4. 4. Differentiation and the Product Life CycleDifferentiation and the Product Life Cycle New packages of hardware and software introduced SYSTEMAugmentation: repackaging of hardware and software PRODUCTS & SERVICES Decommoditization COMMODITY PRODUCTS & SERVICES Commoditization Desystematization : some packages unbundled
  5. 5. Analyzing the Demand SideAnalyzing the Demand Side Techniques for analyzing product attributes and positioning: • Multidimensional Scaling • Conjoint Analysis • Hedonic Price Analysis
  6. 6. Differentiation in Pain Relievers: Multidimensional Scaling of Competing Products in the U.S. Differentiation in Pain Relievers: Multidimensional Scaling of Competing Products in the U.S. High Low Low High EFFECTIVENESS GENTLENESS Tylenol Bufferin Excedrin Bayer Anacin Private label aspirin
  7. 7. Identifying Differentiation Potential: The Demand Side Identifying Differentiation Potential: The Demand Side THE PRODUCT THE CUSTOMER What needs does it satisfy? By what criteria do they choose? What motivates them? What are key attributes? Relate patterns of customer preferences to product attributes What price premiums do product attributes command? What are demographic, sociological, psychological correlates of customer behavior? FORMULATE DIFFERENTIATION STRATEGY • Select product positioning in relation to product attributes • Select target customer group • Ensure customer / product compatibility • Evaluate costs and benefits of differentiation
  8. 8. SYSTEM PRODUCT SERVICE COMMODITY SUPPORT (SOFTWARE) Differentiated Undifferentiated Differentiated MERCHANDISE (HARDWARE) Undifferentiated Differentiation of Hardware and SoftwareDifferentiation of Hardware and Software
  9. 9. Consistency of Differentiation Strategy: Product Integrity Consistency of Differentiation Strategy: Product Integrity Key to successful differentiation is consistency of all aspects of the firm’s relationship with its customers. Product Integrity: the total balance of product features • Internal integrity: consistency between function and structure • External integrity: fit between the product and the customers’ objectives, values, lifestyle etc.
  10. 10. Producer’s strategies High quality Low quality High 7 10 Consumer’s price 7 -5 strategies Low -5 3 price 10 3 Note: In each cell, the lower left number is the payoff to the consumer and the upper right number is the payoff to the producer. The problem of experience goods : quality can only be ascertained after purchase. Hence: Prisoner’s Dilemma:- Equilibrium reached with consumer paying a low price for a low quality item. If producer can signal quality--- both consumer and producer can move to preferred position: high quality product carrying a high price Problem of Quality in Experience Goods: A “Prisoner’s Dilemma” Problem of Quality in Experience Goods: A “Prisoner’s Dilemma”
  11. 11. The Impact of Quality on ProfitabilityThe Impact of Quality on Profitability Low 25% 60% High Relative market share Relativeproductquality Low33%67%High Relativeproductquality Low33%67%High Relativeproductquality Low33%67%High Low 25% 60% High Relative market share Low 25% 60% High Relative market share ROI (%) Relative Price Relative Direct Cost Conclusion: Increases in quality typically add more to price than they do to cost. 19 28 38 107 107 108 104 103 101 14 20 28 103 104 104 104 102 100 7 16 23 101 101 102 104 102 100
  12. 12. Using the Value Chain to Identify Differentiation Potential on the Supply Side Using the Value Chain to Identify Differentiation Potential on the Supply Side FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT INBOUND OPERATIONS OUTBOUND MARKETING SERVICE LOGISTICS LOGISTICS & SALES MIS that supports fast response capabilities Training to support customer service excellence Unique product features. Fast new product development Quality of components & materials Defect free products. Wide variety Fast delivery. Efficient order processing Building brand reputation Customer technical support. Consumer credit. Availability of spares
  13. 13. Identifying Differentiation Opportunities through Linking the Value Chains of the Firm and its Customers: Can Manufacture Identifying Differentiation Opportunities through Linking the Value Chains of the Firm and its Customers: Can Manufacture 1. Distinctive can design can assist canners’ marketing activities. 2. High manufacturing tolerances can avoid breakdowns in customer’s canning lines. 3. Frequent, reliable delivery can permit canner to adopt JIT can supply. 4. Efficient order processing system can reduce customers’ ordering costs. 5. Competent technical support can increase canner’s efficiency of plant utilization. Suppliesofsteel &aluminum Service& technicalsupport Sales Distribution Inventoryholding Manufacturing Design Engineering Inventoryholding Purchasing Distribution Marketing Canning Processing Inventoryholding Purchasing CANNERCAN MAKER 1 2 4 5 3

×