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Chapter 5 Product Differentiation

Product differentiation is a business strategy where firms try to gain a competitive advantage by increasing the perceived value of their products relative to competitors. Firms can differentiate their products based on attributes like features, complexity, introduction timing, customization, reputation, or relationships with customers and other firms. Product differentiation can help firms address threats like new entry, rivalry, substitutes, or powerful buyers and suppliers. It also enables firms to take advantage of opportunities in fragmented, emerging, or declining industries. Organizing for differentiation may involve using cross-functional teams, complex structures, flexibility, creativity-focused controls and compensation, and rewarding risk-taking. While cost leadership and differentiation seem opposed, some argue firms can pursue both with the right approach.

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236 views12 pages

Chapter 5 Product Differentiation

Product differentiation is a business strategy where firms try to gain a competitive advantage by increasing the perceived value of their products relative to competitors. Firms can differentiate their products based on attributes like features, complexity, introduction timing, customization, reputation, or relationships with customers and other firms. Product differentiation can help firms address threats like new entry, rivalry, substitutes, or powerful buyers and suppliers. It also enables firms to take advantage of opportunities in fragmented, emerging, or declining industries. Organizing for differentiation may involve using cross-functional teams, complex structures, flexibility, creativity-focused controls and compensation, and rewarding risk-taking. While cost leadership and differentiation seem opposed, some argue firms can pursue both with the right approach.

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ravina10008
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BY GROUP 2

What is Product differentiation?


It is a business strategy whereby firms attempt to gain a
competitive advantage by increasing the perceived
value of their product and services relative to the
perceived value of other firms.

Ex- Google
Basis of product differentiation
Attributes of its products or services:
Product features
Product complexity
Timing of product introduction

Relationships with customers:
Product customisation
Customer marketing
Product reputation
Linkages within or between firms:
Among functions within
With other firms
Product mix
Distribution channels
Service and support
The Value of Product Differentiation
Product Differentiation and Environmental Threats
Threat of New entry
Threat of Rivalry
Threat of Substitutes
Threat of powerful suppliers
Threat of powerful buyers.
Product Differentiation and Environmental
Opportunities:

Fragmented industries:
Example: XEROX

Emerging industries:
First mover advantage-captures market share

Mature Industries:
Refining and Improving product & services

Declining industries:
Highly differentiated firms discover niche market






Rareness for Product Differentiation
A customer preferences are evidence of a differentiated
product-

increased volume of purchases
and or premium price.
Imitability of Product Differentiation
Sources of costs of imitation
Historical uniqueness
Causal ambiguity
Social complexity

Substitutes
If a base of differentiation is valuable, others will
attempt to imitate it through duplication and/or
substitution
If no substitutes are obvious, then we would conclude
that imitation through substitution will be costlyat
least for the present time





Organizing for Product Differentiation
Organizational Structure
U-Form with cross-functional teams
Complex matrix structure

Management Controls
Flexibility
Broad guidelines
Creativity encouraged

Compensation Policies
Reward for risk taking
Reward for creativity
Multidimensional performance measurement





Management Controls
Flexibility broad
Guidelines creativity encouraged

Compensation Policies
Multidimensional performance management
Creativity
Risk taking

E.g.: Nordstrom

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
Example: McDonald
Example: Rolex
structure, controls, &
policies are not opposites
Thank You...

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