Differentiation Strategies &
value chain
Group 2
Saurabh Gupta, 08
Bhabanishankar Maiti, 19
Mangesh Narkar, 29
Pulkit singhi, 50
• Generic competitive strategies
– Management game plan to competing
successfully and securing competitive
advantage over rivals
• Objective
– Defeat the rival companies in doing job of
satisfying needs and preferences of
customers better than rivals
5 Generic
Strategies
• Broad Differentiation
– Differentiate companies product offering from rivals that will appeal
broad spectrum of buyer
• Focused Differentiation
– Narrow buyer segment
– Offering niche members customized attributes that meets buyers
test and requirements better than rival product
• Integrated cost leadership and Differentiation (Best cost)
– Giving customer more value for their money
– Good to excellent products attributes at lower cost than rivals
(broad) Differentiation
• Unique in ways that are valuable for wide range of
customer
• Almost anything can be base of differentiation
– Tangible factors (product , location etc)
– Intangible factors (Reputation, cause, an ideal)
• Three basis of differentiation
– Product attributes
– Firm customer relationship
– Firm linkage
• Differentiation through Product attributes
–
–
–
–
–
Unique test
Multiple features
Wide selection
Superior service
Engineering design and performance
• Differentiation through Firm-customer relationship
– Customization
– Image reputation
– Consumer marketing
• Differentiation through Firm linkage
– Distribution channel
– Service and support
Ways to implement differentiation strategy
• Incorporate product attributes and user features
that lower buyer overall cost.
– Providing just in time deliveries
– Cell phone for rural economic market with longer
battery period, solar battery, inbuilt flash light,
mosquito repellant
– Chevrolet promise
• Incorporate features that raise product
performance
– Provide buyer greater reliability, ease of use,
convenience, durability – Johnson & Johnson baby
product
– Product or service safer, cleaner - Singapore airlines
Ways to implement differentiation strategy
• Incorporate features that enhance buyer
satisfaction in non economic or intangible ways
– Image, prestige, status superior craftsmanship,
– Rolls Royce, Gucci, Harley Davidson
• Deliver value by means of Differentiating on the
basis of competencies and competitive
capabilities that rivals don’t have or can’t match
– fox news, cnn
– Japanese auto makers
– Microsoft having better capability than Avon
When differentiation strategy works best
• Buyer needs and uses of products are
diverse
– Bigger window of opportunity to do things
differently
Few rivals following similar differentiation
approach
– Differentiator encounter less head to head
rivalry
– Many rivals – strategy overcrowding – weak
brand differentiation
When differentiation strategy works best
• Technological change is fast paced
– Cell phone
– Mp3 players – apple
• Availability of many ways to differentiate product
and service and availability of many buyers to
perceived these differences as having value
– Unless different buyer have distinguishingly different
preferences for certain features and product attribute
profitable differentiation opportunities are restricted .
Pitfalls of differentiating Strategies
Differentiations strategies can fail for any of
several reasons
• Competitors are able to quickly copy most of
appealing product attributes
• Buyers may not see sufficient value in appealing
attributes of companies product
• Overspending on efforts to differentiate affects
company profit
• Over differentiating – product quality or service
level exceeds buyers’ need
• Charge to high price premium
Best Cost strategy
• Concept – competitive advantage through….
– Lower cost than rivals for similar product
– Incorporation of upscale product attributes
– putting company in position to under price rivals
whose products have similar upscale attributes
• Blend of low cost advantage and differentiation
advantage
• Appeals broad market as a whole and narrow
niche market .
Best cost strategy
•
For successful implementation firm must be
able to ..
1. Incorporate attractive features at lower cost than
rivals whose product have similar features
2. Manufacture good to excellent quality product at
lower cost than rivals similar quality product
3. Develop the product that delivers good to excellent
performance at lower cost than rivals whose
products also known for good to excellent
performance
4. Provide attractive customer service at lower cost
than rival who provide similar services
When Best cost strategy works best
• Market where buyer diversity makes the
product differentiation the norm and there
many buyers are also sensitive to price
and value
Toyota Best Cost strategy for Lexus Line
Introduction
• Toyota Widely regarded as low cost producer
• Despite its emphasis on product quality Toyota achieved
low cost leadership through efficient supply chain
management and low cost assembly capabilities
• Models are positioned in low to medium end price
spectrum
• High production volume are conduce to low unit cost.
• Toyota decided to introduced new Lexus model to
compete in luxury car segment it employed integrated
strategy .
Toyota took following steps in crafting and implementing
its Best cost strategy.
1. Design an array of high performance characteristics and
upscale features in to Lexus model so as to make
comparable in performance and luxury to other high end
models such as Mercedes, Audi, Jaguar, Cadillac.
2. Transferring it’s capability in making high quality Toyota
models in low cost to making premium quality Lexus model
at cost below other luxury car market
3. Toyota supply chain capabilities and low cost assembly
know how allowed it to incorporate high tech performance
features and upscale quality at substantially less cost
compare to Mercedes and BMW models
4. Toyota manage to keep the price of attractively
equipped Lexus car low enough to draw price
conscious buyers away from Mercedes and BMW.
5. Establishing a new network of Lexus dealers,
separate from Toyota dealers, dedicated to providing
a level of personalized, attentive customer service
unmatched in the industry.
Case study conclusion
• Lexus models consistently ranked first in widely watch J D
Power & associate quality survey.
Price
Lexus RX 330,
midsize SUV
Mercedes M-class
SUV
BMW X5 SUV
$ 36000 - $ 45000
$ 50000 - $ 65000
$ 42000 - $ 70000
• Lexus models are typically several thousand below
Mercedes and BMW models clear signal that Toyota
succeeded in implementing integrated strategy.
Big risk of best cost provider strategy
• Possibility of getting squeezed between
low cost provider and high end
differentiation strategy.
– Low cost providers may siphoned away with
the appeal of low cost despite their less
appealing product attributes
– High end providers may be able to steal
customer away with appeal of better product
attribute even though their product carry high
price tag
Focus Differentiation
• Concentrated attention on narrow piece of total
market
– Target segment or niche can be Geographical
uniqueness – community coffee
– Specialized requirement in using the product
– Special product attribute the appeal niche members
• To implement a focus strategy, firms must be
able to:
– Complete various primary and support activities in a
competitively superior manner, in order to develop
and sustain a competitive advantage and earn aboveaverage returns
Factors That Drive Focused Strategies
• The target niche is big enough to be profitable and offers
good growth potential
• Large firms may overlook small niches.
• The industry has many different segments there by
allowing focuser to pick competitively attractive niche
• A firm may lack the resources needed to compete in the
broader market
• A firm is able to serve a narrow market segment more
effectively than can its larger industry-wide competitors
• Focusing allows the firm to direct its resources to certain
value chain activities to build competitive advantage
• The focuser has reservoir of customer goodwill and
loyalty that it can draw on to help to keep away
ambitious challengers
Competitive Risks of Focus Strategies
• A focusing firm may be “outfocused” by its
competitors
• A large competitor may set its sights on a firm’s
niche market
• Customer preferences in niche market may
change to more closely resemble those of the
broader market
Value-Creating Activities Associated with the Differentiation Strategy
Summary
Broad Differentiation
Focus Differentiation
Best Cost provider
Strategic target
a broad cross-section of the
market
Narrow market niche where buyer
needs and preferences are
distinctively different
Value conscious buyer
Basis of competitive
advantage
ability to offer buyers
something attractively
different from
competitor
Attributes that appeal specifically
to niche members
ability to give customers more
value for money
Product line
Many product variation, wide
selection, emphasis on
differentiating features
Features and attributes are
tailored to the test and
requirement of niche
members
Items with appealing attributes
& upscale features
production strategy
build in whatever features
buyer are willing to pay
for , strive for product
superiority
custom made product that match
the test and requirement of
niche members
Build in upscale features and
appealing attributes at
lower cost than rivals
marketing strategy
tout differentiating features ,
charge premium price to
cover extra cost
communicate how product
offering does the best job of
meeting niche buyer
expectation
tout delivery of best value ,
either deliver comparable
features at lower price
than rivals or match
rivals on prices and
provide better features
Key to sustaining strategy
Stress consistent innovation
to stay ahead of
imitative competitors,
concentrate on few
differentiating features
stay committed to serving niche
better than rivals, don't blur
the firm image by entering
other market segment, or
adding other product to
widen market appeal
unique expertise in
simultaneous managing
cost down while
incorporating upscale
features and attributes
Thank you