ch.5 differentiation advantage

When customers go to purchase a product or service to get a job done, they tend to consider two factors:

1) the way a product is differentiated from other products to perform the job (or jobs) they want done, and 2) the price of the product.

6 keys ways to differentiate a product

1. Superior features 2. Better reliability 3. Customizable product 4. Convenience 5. Network size/ecosystem 6. Brand/image

what is product differentiation

Product differentiation is a strategy whereby companies attempt to gain competitive advantage by offering value that is not available in other products or services.

what are sources of differentiation

Products typically offer unique value because they offer: 1) different product features, a. the product does a "better job" of meeting a customer need on existing product features, (ex. Dyson Vacuums:Their tagline: "The strongest suction at the cleaner head." b. the product does "more jobs" for the customer than other products (ex. Iphone, digital cameras) c. the product does a "unique job" that nothing else does. (disney theme park, NikeID, Timbuk2, Build a Bear) 2) superior quality or reliability: 3) convenience, or (ex: starbucks, amazon) 4) brand image.

1. What is the consumption chain and how does it help a company to discover new opportunities for differentiation?

We then describe the consumption chain—the set of activities a customer goes through in the process of realizing a need and then acting on it to purchase a product or service—as another way to look for ways to differentiate a product or service.

Barrier to imitation: brands (at firm level)

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MES: minimum efficient scale Ex. Plane costs 5 billion to design and machine, 400 planes to break even Huge number means few companies in business Point where line flattens out on MES graph is where you want to be. If MES is high percentage of whole industry than very few companies

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Variance within industry is 8x greater than variance across industries. (commodities: can't be differentiated well)

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product differentiation is always a matter of

customer perception.

There are two major ways that companies attempt to find sources of product differentiation:

customer segmentation and mapping the consumption chain.

how do you map the consumption chain?

1. The first step in the consumption chain occurs when the customer becomes aware that they need a product or service. 2. Once potential customers are aware that they have a need for a product, they then need to find it. 3. After a consumer has narrowed down the possibilities, he or she must make a choice. This is the time when product attributes typically dominate and it is critical to ensure that consumers are aware of features that may differentiate a product. 4. Another way to differentiate a product is simply to make the process of ordering and purchasing more convenient. 5. Once purchased, customers sometimes need their product delivered and installed. 6. When it is expensive, inconvenient, or even dangerous for customers to have a product simply sitting around, there is the potential to differentiate on how the product is stored. 7. What do customers need help with when they use your product? 8. What if customers aren't satisfied and need a return or exchange? 9. How is your product repaired or serviced? 10. What happens when your product is disposed of or no longer used? Summary: The tools of customer segmentation and analyzing the consumption chain are useful for identifying what unique value to offer a customer.

how do you do Customer Segmentation?

1.Product Attributes (examples: harley attributes) 2.Demographics/Customer Attributes 3.Job-to-be-Done every job has a functional, a social, and an emotional dimension—and the relative importance of these elements varies from job to job. (requires observation)

2. What is a net promoter score (NPS)? Why is it an effective predictor of successful differentiation? Of growth?

reichheld claims that tracking net promoters—the percentage of customers who are enthusiastic promoters of a company or product minus the percentage who are detractors—is a powerful way to measure customer loyalty. He classifies customers who respond with a 9 or 10 on the question above as a promoter. Anyone who scores 6 or below is a detractor—someone who is likely to steer others clear of your company or product. Those scoring 7 or 8 are neutral. By taking the percentage of customers that score 9 or 10 and subtracting the percentage that score 6 or below, you have created a "net promoter score." Companies with the highest net promoter score consistently grow much faster than competitors.[i] [i] Ibid Finally, we introduced the "Net Promoter Score" as a tool that can be used to assess how well a differentiation strategy is working as far as turning customers into promoters of a company's offering.