1. History of Product Differentiation 2. Product Differentiation Strategy 3. Cost and Benefits of Product Differentiation 4. Types of Product Differentiation 5. Bases of Differentiation 6. Differentiating Factors 7. Differentiation & Porter’s 5 Force Model 8. Advantages of Product Differentiation 9. Competitive Advantages 10. Value for Product Differentiation 11. Differentiation and Segmentation 12. Case Study – Micromax 13. Case Study – Pizza Hut 14. Conclusion

1. Presented By…..
Mufaddal Nullwala – 15-I-131
A Study on…
Product Differentiation
1

2. Contents
• History of Product Differentiation
• Product Differentiation Strategy
• Cost and Benefits of Product Differentiation
• Types of Product Differentiation
• Bases of Differentiation
• Differentiating Factors
• Differentiation & Porter’s 5 Force Model
• Advantages of Product Differentiation
• Competitive Advantages
• Value for Product Differentiation
• Differentiation and Segmentation
• Case Study – Micromax
• Case Study – Pizza Hut
• Conclusion
2

3. PRODUCT DIFFERENTIATION
• Edward Hastings Chamberlin (May
18, 1899 – July 16, 1967) was
an American economist. He was
born in La Conner, Washington
• Chamberlin published his book The
Theory of Monopolistic
Competition in 1933
3

4.  What is product differentiation?
The three most important words in differentiating your brand: focus,
focus and focus.”- Marty Neumeier*
 Why is product differentiation important?
4
 Is Product Differentiation Socially
Inefficient?

5. THE COSTS & BENEFITS OF PD
• Product differentiation raises costs
– R&D costs
– Increases transaction costs
– May increase production/delivery costs
• Product differentiation increases consumer
satisfaction (measured in terms of willingness and
ability to pay)
5

6. PRODUCT DIFFERENTIATION
There are two types of product differentiation:
1. Horizontal: Goods are different but at the same price
some consumers will buy one and some will buy
other, it really depends on their preferences.
2. Vertical: Goods are different and all consumers would
prefer one to the other if they were sold at the same
price. Goods are of different qualities.
6

7. 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 firms
7

8. DIFFERENTIATING FACTORS
• Price
8
• Style
• Form
• Features
• Complexity
• Customization
• Performance
• Quality
• Durability
• Reliability
• Reparability

9. DIFFERENTIATION & PORTER’S
5 FORCES
Product
DifferentiationEntry
Supplier
Customer
Substitutes
Rivalry
9

10. THE ADVANTAGES OF A PRODUCT
DIFFERENTIATION STRATEGY
Product differentiation is a marketing strategy that businesses use to
distinguish a product from similar offerings on the market. For small
businesses, a product differentiation strategy may provide a competitive
advantage in a market dominated by larger companies:
•Creates Value
•Non-Price Competition
•Brand Loyalty
•No Perceived Substitute
10

11. 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.
11

12. THE VALUE OF PRODUCT
DIFFERENTIATION
Exploiting Industry-type Opportunities
• Fragmented Industry
Branding: commodity differentiated product
• Emerging Industry
First mover advantages: captures market share
• Mature Industry
Refining product or adding services
• Declining Industry
Exploiting niches: serving those with strong needs
12

13. Exploiting Other Opportunities
Trends or Fads
• spinners
• surf clothing
Government Policy
• Toyota Prius
• airport x-ray machines
Social Causes
• themed credit cards
• animal safe clothing
Economic Conditions
• outplacement agencies
• check cashing services
THE VALUE OF PRODUCT
DIFFERENTIATION
13

14. 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 price
14

15. 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 complexity
15

16. ORGANIZING FOR
PRODUCT DIFFERENTIATION
Organizational
Structure
• U-Form with
cross-functional
teams
Management
Controls
Compensation
Policies
• flexibility
• broad guidelines
• creativity
encouraged
Reward:
• cross-
functional
cooperation
• creativity
• risk taking
16

17. BUSINESS LEVEL STRATEGIES
Two Generic Business Level Strategies
Cost Leadership:
• generate economic value by having lower costs
than competitors
Product Differentiation:
• generate economic value by offering a product
that customers prefer over competitors’ product
17

18. COST LEADERSHIP AND
PRODUCT DIFFERENTIATION
Can a firm pursue both simultaneously?
No Yes
• use of structure,
management control,
and compensation
policies are nearly
opposites
• firms can do both
because some bases
of differentiation also
lend themselves to
low cost
• structure, controls, &
policies are not opposites
18

19. IMPLEMENTING DIFFERENTIATION
INTERNATIONALLY
• standardized product
• little variance in
tastes & preferences
• centralized control
• focused on efficiency
• non-standard product
• high variance in
tastes & preferences
• decentralized control
• focused on satisfying
tastes & preferences
Global Multi-Domestic
19

20. IMPLEMENTING DIFFERENTIATION
INTERNATIONALLY
Business-level and International Expansion
Strategies
Generally, but not always…
• structure, control, & compensation policies are
similar as follows:
Cost leadership
Product differentiation
Global
Multi-domestic
(international integration, efficiency)
(local responsiveness) 20

21. DIFFERENTIATION AND
SEGMENTATION
• Difference between strategies for
Differentiation and Segmentation
– Product differentiation-
• bending of supply to the will of supply
• Shift or change the demand curve for market offering
of individual or group of supplier
• Thus establishing equilibrium in the market by
brining equilibrium in supply and demand
21

22. DIFFERENTIATION AND
SEGMENTATION
• Difference between strategies for
Differentiation and Segmentation
– Segmentation
• Development on demand side of market
• Adjustment of product and marketing effort towards
consumer
• Recognition of several demand schedules where only
one was recognized before.
22

23. DIFFERENTIATION AND
SEGMENTATION
• Market segmentation is one of the successful
strategies used for advanced use of product
differentiation
• Exploitation of market segmentation,
– which provides greater maximization of consumer
satisfaction,
– tends to build a more secure market position and leads
to greater overall stability
23

24. 24
VIDEO

25. DIFFERENTIATION AND
SEGMENTATION
• NEXA is a
retail network
from Maruti
Suzuki that
caters the
high-end
consumers
who have
gone beyond
their first car
and are now
looking for an
experience
25

26. • What Maruti Suzuki has to say about Nexa
– “Today people have enough disposable incomes and are ready to
dispose money. Five - ten years, Indians were not ready for such
an experience. And secondly, earlier people kept cars for a longer
duration, today they keep it for a shorter duration, which keeps
the brands on the heels to connect with the consumer”
• After a research, it was established that consumers (while
buying cars) missed on hospitality
– the concept of Nexa was derived from the hospitality, banking
and aviation industries, which knew well about one-on-one
interaction with the consumers
26
DIFFERENTIATION AND
SEGMENTATION

27. CASE STUDY
MICROMAX
Micromax is a good example of product differentiation
• Strated Business in 2008 . Captured 22 % share by 2010
• How was it Possible ?
• Innovative Ideas in product enhancement led the way
• 1st Time Features like - 30 Day Battery back up
Dual Sim card
Qwerty Keypad
Universal remote control mobile
27

28. CASE STUDY
MICROMAX
• The Challenge
• Strategy
• Execution
• Promotion Strategy
• Place strategy
• Execution:
• Customer acquisition
28

29. CASE STUDY
MICROMAX
Results
The strategies helped in increasing the market share
of Micromax and it penetrated deeper in the urban
markets. It became the third largest GSM mobile
phone vendor in India after Nokia and Samsung, with
a market share of 6 per cent.
29

30. CASE STUDY
PIZZA HUT
Pizza Hut is an American Pizza chian with 5139 stores by 2012.
Core Values of PIZZA HUT
• Have a PASSION for excellence in everything we do.
• EXECUTE with positive energy and urgency.
• Be individually and collectively ACCOUNTABLE for growth in people, customer
satisfaction and Profitability.
• Find reasons to RECOGNIZE the achievement of others and have fun doing it.
• LISTEN and more importantly, respond to the voice of the customer. Think
• SAFETY first.
30

31. CASE STUDY
PIZZA HUT
What made them different from others ?
• Unlike Dominos or other Pizzerias Pizza Hut wanted to cater
customers making the store a more of dining experience
than just having pizza.
• They offered beer and other drinks as some of the stores as
well keeping this in mind.
31

32. CASE STUDY
PIZZA HUT
• Full Service Restaurants: These are the traditional pizza restaurants offering a
seated serviceand takeaway.
• Home Service Restaurants: These restaurants offer home delivery and
takeaway.
• Restaurant Based Delivery: These restaurants are full service restaurants
combined with aDelivery and take away concept.
Pizza Hut: Operational Strategies in India
the Indian Fast Food Industry is anticipated to grow at a CAGR of around 34%
during 2011-2014. 32

33. CASE STUDY
PIZZA HUT
• The major competitor of Pizza Hut is Domino’s Pizza, which
believes that, people eat pizzas because they want to enjoy the
authentic taste. Considering this view, though Domino’s
experimented with flavours like, Chettinad Chicken in the past, it
realised regional flavours did well initially due to the novelty
factor, but could not sustain themselves in the long run.
• Unlike Domino’s Pizza, Pizza Hut wants to focus on more than just
pizzas. It has offerings like pasta, appetisers and a larger collection
of beverages. This is part of its strategy to make the transition
from a quick service restaurant (QSR) to a casual dining
restaurant.
33

34. CASE STUDY
PIZZA HUT
Pricing Strategy.
In this recessionary times, the basic strategies of fast food businesses (including
Pizza Hut) is on making consumers try new products and gradually move them
over to high price points.
Therefore, the strategy rests upon a simple dictum – hook the customer, make
him get used to a product, so that he becomes a habitual buyer.
34

35. CONCLUSION
As India is one of the most populated and developing country with most of the
people living in the middle class status, the needs of these customers are:-
• Durability
• Features
• Performance quality
• Style
35

36. CONCLUSION
All the above with an affordable price range
That is why these are the most common basis of products differentiation in
India
Also
product differentiation creates customer preferences
preferences allow firms to make above normal profits
bases of product differentiation that meet the VRIO criteria may generate
competitive advantage
a product differentiation strategy is only as good as its implementation
36

37. 37