Chapter 5: Product Differentiation
Consumer Marketing
Firms attempt to alter the perceptions of current and potential customers, whether or not specific attributes of a firm's products/services are actual altered (firms can do this by advertising)
A differentiated product...
fills one or more needs better than the products of competitors (image, beauty, safety).
Imitability of Product Differentiation
(1) Easy duplication of bases- product features (2) May be costly- product mix, complexity, or customization, links with other firms, and consumer marketing (3) Usually costly- timing, location, reputation, links between functions, distribution channels, service and support
Links with other Firms
(1) Linkage between Functions (2) Linkage with other Firms (3) Product Mix (4) Distribution Channels (5) Service and Support
Can a firm purse both cost leadership and product differentiation?
(1) No- use of structure, management control, and compensation polices are nearly opposites (2) Yes- firms can do both because some bases of differentiation also lend themselves to low cost; structure, controls, and policies are not opposite
Organizing for Product Differentiation
(1) Organizational structure (U-form with cross-functional teams) (2) Management controls (flexibility, broad guidelines, and creativity encouraged) (3) Compensation policies (reward: cross-functional cooperation, creativity, and risk taking)
Relationships with Customers
(1) Product Customization (2) Consumer Marketing (3) Product Reputation
Product Attributes
(1) Product features (2) Product complexity (3) Timing of introduction (4) Location
VRIO
(1) Valuable (2) Rare (3) Costly to imitate (4) Organized to exploit
Product Differentiation
A business strategy where firms attempt to gain a competitive advantage by increasing the perceived value of their products or services relative to the perceived value of other firms' products or services
Product Customization
A product that is customized specifically for particular customer applications
Product Reputation
A socially complex relationship between a firm and its customers
Linkage between Functions
An example would be architectural competence which is the ability to use organizational structure to facilitate coordination among scientific disciplines to conduct research which allows firms to pursue product differentiation by introducing new powerful drugs; this is an important source of competitive advantage
Valuable & Rare
By definition we assume rareness and valuableness if a product is differentiated (increased volume of purchases and/or premium price)
Product Mix
Can be a source of product differentiation when those products or services are technologically linked or when a single set of customers purchases several of a firm's products or services (ie: shopping malls)
Product Complexity
Can be thought of as a special case of altering a product's features to create product differentiation
Linkage with other Firms
Differentiation is based on explicit linkages between one firm's products and the products or services of other firms
Cost of Imitation
Historical uniqueness, causal ambiguity, and social complexity
Distribution Channels
How a firm chooses to distribute its product
Timing of Production Introduction
Introducing a product at the right time can also help create product differentiation (doesn't have to be a first-mover advantage, just has to introduce the right product at the right time)
Environmental Opportunity
Product Differentiation can also help a firm take advantage of opportunities: (1) in fragmented industries firms can consolidate a market (differentiated product), (2) in emerging industries firms can gain advantage by perceived technological leadership, preemption of strategically valuable assets, and buyer loyalty due to high switching costs (capture market share), (3) in mature industries firms often switch from attempts to introduce radically new technologies to product refinement, (4) in a declining industry firms may be able to discover a viable market niche that will enable them to survive delisted the overall decline in the market, and (5) product differentiation can have a significant impact on firms in a global industry
Environmental Threat
Product Differentiation: (1) reduces the threat of new entry by forcing potential entrants to an industry to absorb standard beginning costs and additional costs, (2) reduces the threat of rivalry because each firm in an industry attempts to carve out its own unique product niche, (3) reduces the threat of substitutes by making a firm's current products appear more attractive than substitute products, (4) reduces the threat of powerful suppliers by having loyal customers or customers who are unable to purchase similar products from other firms, and (5) reduces the threat of powerful buyers "quasi-monopoly" which means buyers interested in purchasing this particular product use buy it from a particular firm
Service and Support
The level of service and support provided with a product or service
Product Features
The most obvious way that firms can try to differentiate their products is by altering the features of the products they sell
Location
The physical location can be a source of product differentiation
The existence of product differentiation...
is always a matter of customer perception.