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Week 14 Business strategies: differentiation and focus strategies - Coggle…
Week 14 Business strategies: differentiation and focus strategies
differentiation strategy
according to OU "customer’s perception of a higher value associated to a product or service, which creates a condition of uniqueness."
Defining broad differentiation
"aims to achieve competitive advantage by offering differentiated products or services to a broad target (e.g. more than one customer segment and/or georgraphic area)."
Customer ultility curve
willingness to pay curve, also named industry’s uniqueness curve
urve above average , make it more unique
‘differentiation’ is not synonymous with the term ‘segmentation’ (Grant, 2016).
Differentiation vs segmentation
differentiation and segmentation is to consider that differentiation is about how a firm competes (a particular way of creating value to customers) (Grant, 2016, p. 188)
segmentation is about where a firm competes (a particular customer segment) (Grant, 2016, p. 188).
differentation & segmentation take place parralell (Grant, 2016).
types of differentiation
Tangible differentiation
observerable differences: size, colour, design, material, also compliments of product, delivery, after sales etc (Grant, 2016, p. 189)
Combing intangible and tangible differentation
often food products
Intangible differentiation
not directly observable, social, emotional, psychological and aesthetic perceptions of customers about a product or service and what it offers(elaborated from Grant, 2016, p. 189)
desire for status, uniqueness, exclusivity, individuality, security and belongingness
Ways to differentiate
The customer demand analysis
Product dimension
customer dimension
customer dimension explores the willingness of customers to
pay a premium for the value created
through differentiation
What are the criteria which customers use to select a product among competing alternatives?
What motivates customers to select and purchase a product among competing alternatives?
develop an understanding of customer perceptions of a product or service.
analysing customer preferences
Multidimensional scaling
visualising in graph
visualise the positions of competing products using (usually) two attributes
Conjoint analysis
key attributes of a specific product (or service) of a firm are identified
a market research project is then performed in order to rank a set of competing products containing different combinations of attributes
finally, proportions of customers are estimated for each of the competing products.
helps identify the strength of customer preferences for different product attributes, presented numerically
helps evaluate a possible percentage of customers who would prefer the firm’s existing or new product over other alternatives available on the market.
Hedonic price analysis
helps to rank products or services based on their implicit market prices, defined as the sum of prices of attributes corresponding to this product or service.
The more valuable the attributes of the product or service, the greater the sum of prices of these attributes is, and the higher the implicit market price of the product or service
important role in planning a differentiation strategy.
Differentiation supply side
helps to define the activities and resources that a firm needs in order to pursue differentiation.
According to Grant (2016, p. 192), there are
four generic areas
of activity underlying differentiation.
creating uniqueness
Grant (2016, p. 192) suggests these: one or more of the below sources.
product (or service) features and performance
complementary services (e.g. customer service)
intensity of marketing services (e.g. promotional activities)
technology embodied in design and manufacturing process
quality of inputs
procedures related to enhancing customer experiences (e.g. quality control)
skills and experience of employees
location choice (e.g. position of the stores)
the extent of vertical integration which helps to control inputs and intermediate processes. You will learn about vertical integration in Week 18 of Block 4.
developing product (or service) integrity
defined as the
consistency of a firm’s differentiation
; it can be internal and external.
the external consistency is between the product features and the customer needs and expectations
should match customers’ needs and social and psychological desires, including values, lifestyle, use pattern and self-identity
internal consistency is between the function and structure of the product –
all the parts and components of a product work
together. (car insides)
signalling and reputation
associated with how information about a product or service is disseminated to customers. to
create
and manage the
reputation
of a firm
non-verbal
through signalling - signs, symbols, numbers, shapes, colours, sounds, melodies, gestures and images.
reputation
verbal
tv, radio
branding.
promoting a product or a service by identifying it with a specific brand (Merriam-Webster, 2019).
signal a quality level or a customer experience associated with a product or service.
Focus strategies referred to as niche strategies.
examples of a niche market segment are:
a specific group of buyers defined according to a very wide range of possible features such as distribution channel (e.g. online only), or particular customer characteristics (e.g. age, gender, ethnicity or income group)
a different specific and limited geographic market (the Australian market, the City area of London).
gain a position of (sustained) competitive advantage by concentrating on a niche market and neither of the two broad strategies
Risks and boundaries of differentiation
Imitation
copying
Price and cost balance
price customers are willing to pay for the additional value offered by the differentiated product
Rise of differentiation focusers
Companies focused on serving a smaller market segment with a differentiated product or service
differentiation is not unlimited: it has its boundaries.
Constraints of differentiation (Factors limiting differentiation)
technical factors
technical standards
technical complexity
market factors
customer needs
Cost focus
specific niche on the market.
Differentiation focus
firm which uses a differentiation approach in a specific niche in the market.
Aston Martin, usually luxury, tie rack, common among small firms
Risks of focus strategies
Hitt et al. (2017) suggest considering these three risks:
A competitor may be able to define the segment more narrowly and push the company out of niche focus.
deepen the niche - climbing gear
A competitor operating more broadly may decide to also serve the niche segment that is covered by the company.
The needs of the niche served by the company may change and lose the specificity they had initially or even disappear.
‘Stuck-in-the-middle’ situation
between cost leadership and differentiation
"Porter’s generic strategies that a company should follow to succeed in its industry."