Product Differentiation on management strategic

product diffrentation on management strategic

1. What is Product Differentiation? Product differentiation is 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. These other firms can be rivals or firms that provide substitute products or services.

2. A firm’s attempts to create differences in the relative perceived value of its products or services often are often made by altering the objective properties of those products or services

3. Rolex attempts to differentiate its watches from Timex and Casio watches by manufacturing them with solid gold cases. Mercedes attempts to differentiate its cars from Fiat’s cars through sophisticated engineering and high performance. Victoria’s Secret attempts to differentiate its shopping experience from Wal-Mart, and other retailers, through the merchandise it sells and the way it sells it.

4. Focusing on the Attributes of a Firm’s Products or Services To differentiate its products, a firm can focus directly on the attributes of its products or services: 1. Product features 2. Product complexity 3. Timing of product introduction 4. Location or on relationships between itself and its customers: 5. Product customization 6. Consumer marketing 7. Product reputation or on linkages within or between firms: 8. Linkages among functions within a firm 9. Linkages with other firms 10. Product mix 11. Distribution channels 12. Service and support

5. Product Features The most obvious way that firms can try to differentiate their products is by altering the features of the products they sell. One industry in which firms are constantly modifying product features to attempt to differentiate their products is the automobile industry. For example, at the 2017 Detroit Auto Show, General Motors introduced a new feature on certain versions of its Cadillac CTS called “V2V”—this is a vehicle to vehicle communication system that will enable cars to gather data from other cars about traffic and road conditions ahead.

6. Product Complexity Product complexity can be thought of as a special case of altering a product’s features to create product differentiation. In a given industry, product complexity can vary significantly. The BIC “crystal pen,” for example, has only a handful of parts, whereas a Cross or a Mont Blanc pen has many more part

7. Timing of Product Introduction Introducing a product at the right time can also help create product differentiation. As suggested in Chapter 2, in some industry settings (e.g., in emerging industries) the critical issue is to be a first mover—to introduce a new product before all other firms . Being first in emerging industries can enable a firm to set important technological standards, preempt strategically valuable assets, and develop customer-switching costs.

8. Location The physical location of a firm can also be a source of product differentiation. 7 Consider, for example, Disney’s operations in Orlando, Florida. Beginning with The Magic Kingdom and EPCOT Center, Disney built a world-class destination resort in Orlando.

9. Focusing on the Relationship Between a Firm and Its Customers The second group of bases of product differentiation identified focuses on relationships between a firm and its customers.

10. Product Customization Products can also be differentiated by the extent to which they are customized for particular customer applications. Product customization is an important basis for product differentiation in a wide variety of industries, from enterprise software to bicycles

11. Consumer Marketing Differential emphasis on consumer marketing has been a basis for product differentiation in a wide variety of industries. Through advertising and other consumer marketing efforts, firms attempt to alter the perceptions of current and potential customers, whether specific attributes of a firm’s products or services are actually altered.

12. Reputation Perhaps the most important relationship between a firm and its customers depends on a firm’s reputation in its marketplace. Indeed, a firm’s reputation is no more than a socially complex relationship between a firm and its customers.

13. Product Mix One of the outcomes of links among functions within a firm and links between firms can be changes in the mix of products a firm brings to the market. This mix of products or services can be a source of product differentiation, especially when: (1) those products or services are technologically linked; or (2) when a single set of customers purchase several of a firm’s products or services.

14. Service and Support Products have been differentiated by the level of service and support associated with them. For example, some personal computer firms have very low levels of service provided by independent service dealers.

15. Product Differentiation and Sustained Competitive Advantage Product differentiation strategies add value by enabling firms to charge prices for their products or services that are greater than their average total cost. Firms that implement this strategy successfully can reduce a variety of environmental threats and exploit a variety of environmental opportunities.

16. Rare Bases for Product Differentiation The concept of product differentiation generally assumes that the number of firms that have been able to differentiate their products in a particular way is, at some point in time, smaller than the number of firms needed to generate perfect competition dynamics. The Imitability of Product Differentiation Valuable and rare bases of product differentiation must be costly to imitate if they are to be sources of sustained competitive advantage. Both direct duplication and substitution, as approaches to imitation, are important in understanding the ability of product differentiation to generate competitive advantages

17. Direct Duplication of Product Differentiation firms that successfully implement a cost leadership strategy can choose whether they want to reveal this strategic choice to their competition by adjusting their prices. If they keep their prices high—despite their cost advantages—the existence of those cost advantages may not be revealed to competitors. Of course, other firms—such as Wal-Mart—that are confident that their cost advantages cannot be duplicated at low cost are willing to reveal their cost advantage through charging lower prices for their products or services.

18. Organizing to Implement Product Differentiation Organizational Structure and Implementing Product Differentiation A functional, or U-form, organizational structure. However, whereas the U-form structure used to implement a cost leadership strategy has few layers, simple reporting relationships, a small corporate staff, and a focus on only a few business functions, the U-form structure for a firm implementing a product differentiation strategy can be somewhat more complex.

19. Organizational Structure : 1. Cross-divisional/cross-functional product development teams 2. Complex matrix structures 3. Isolated pockets of intense creative efforts: Skunk works Management Control Systems: 1. Broad decision-making guidelines 2. Managerial freedom within guidelines 3. A policy of experimentation Compensation Policies: 1. Rewards for risk-taking, not punishment for failures 2. Rewards for creative flair 3. Multidimensional performance measurement

20. Compensation Policies and Implementing Product Differentiation Strategies The compensation policies used to implement product differentiation listed inTable 5.3 very much complement the organizational structure and managerial controls listed in that table. For example, a policy of experimentation has little impact on the ability of a firm to implement product differentiation strategies if every time an innovative experiment fails individuals are punished for taking risks. Thus, compensation policies that reward risk-taking and celebrate a creative flair help to enable a firm to implement its product differentiation strategy.

21. Can Firms Implement Product Differentiation and Cost Leadership Simultaneously? Please answer the question above softfile Individual collected on Tuesday at 10 pm Gdrive Class