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Summary of “Strategic Management and Competitive Advantage”, Chapter 5 by Jay B. Barney and William S. Hesterly
Citation preview
I’m
different!
Product Di erentiation
One of two (or many) ways business gains competitive advantage.
Summary of “Strategic Management and Competitive Advantage”, Chapter 5
by Jay B. Barney and William S. Hesterly.
ff
by Jay B. Barney and William S. Hesterly.
Presenters: Dwi Arti Anugrah, Endro Catur Nugroho, Marlisa Kurniati, Tri Kuncoro Wati
Faculty of Psychology, Universitas Indonesia, 2013
Information in this document is intended for academic purposes only.
How?
cheaperquicker
trace-
less
Competitive
Advantage
How?
• Cost Leadership
• Product Differentiation
• ???
used by
Mariah
Carey
Cheaper!
More
Benefits!
yours compe-
titors
cost cost
value value
yours compe-
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value valueUSD
23 USD
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23
Product Product Product
Differentiation
Product
Differentiation“A business strategy whereby firm
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”
(Barney & Hesterly, 2012)
“A business strategy whereby firm
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”
(Barney & Hesterly, 2012)
Product Product Product
Differentiation
Product
Differentiation“A business strategy whereby firm
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”
(Barney & Hesterly, 2012)
“A business strategy whereby firm
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”
(Barney & Hesterly, 2012)
Product Differentiation
is about
Customer Perception
Why Differentiate?
� Focus on specific market� Focus on specific market
� Price war competition
� Declining industry
� Others?
How to Differentiate Product?
Focus on:
Attributes of Relationship with Linkages within or Attributes of
products:
Relationship with
customers:
Linkages within or
between firms:
1. Features
2. Complexity
3. Timing
4. Location
5. Customization
6. Marketing
7. Reputation
8. Among functions within
a firm
9. With other firms
10. Product mix
11. Distribution channels
12. Service and support
Product Featuresaltering the features
(materials, functions, etc.)
of a product1
JAVARA™ promotes Indonesia’s finest natural
gastronomic heritage: food biodiversity,
gastronomic-culture and craftsmanship. The
collaboration of the three allows JAVARA to create
artisanal, natural and organic food.
What makes the product different from other
organic foods:
1. No chemical additives (coloring, preservatives, 1. No chemical additives (coloring, preservatives,
bleaching and flavoring)
2. Fair trade, ensures sustainable agriculture and
apply that benefits the farmers, small producers
and the consumers.
Other exp: Mercedes Benz and “crumple zone”
Q: how to ensure product features equal to customer benefits?
Product Complexity
exposing product parts to
create sense of complexity
or simplicity2
Simply put, BreadTalk™ makes bread. It is aimed for
the urban community, reflected on its boutique
design, breadware, up to the look of the breads
themselves.
What makes the product different from other bread
Q: is complexity (read: sophistication) equal to customer benefits?
What makes the product different from other bread
boutiques’:
1. ‘See-thru’ kitchen to expose the complexity of
parts (and process) that made up a simple-
looking bread
Other exp: BIC and its “handful” parts
Product Locationphysical location is
‘strategic’ or preferable for
buying experience3
7-Eleven™ is a 24 hours convenience store which
provide fresh food and beverages products, groceries
with dine in facilities.
What makes the product different from other
convenience stores:convenience stores:
1. Strategic location. “Dimana ada pengkolan, disitu
ada 7-Eleven”, it is where the street junction is.
2. Providing space for buyers to dine-in (read:
hangout), hence, buy more.
Other exp: Disney’s operation in Orlando, Florida
Q: can online replace physical location yet remain ‘strategic’?
Product Timing to Introduction
perception of ‘more
valuable’ due to perfect
timing (needs, trends, etc.)4
Mobile banking application was was made possible
in Indonesia as mobile phone was becoming mass in Indonesia as mobile phone was becoming mass
needs and mobile data communication was cheap.
Different to its previous technology (SMS-based,
which is still being used by telco operators), it uses
mobile data application installed in account holders’
smartphone.
What makes the product different from other
banking methods:
1. It exploits the increasing (if not booming) mobile
and smartphone use in Indonesia as well as
Q: does being the first promise more likeliness to succeed?
and smartphone use in Indonesia as well as
availability of local apps developers.
2. It address traffic problem(esp. in Jakarta) which
was a significant barrier, especially for business
owners.
Other exp: Microsoft MS-DOS and introduction of PC
Product Customization
Products are customized for
particular customer
(applications)5
Dell introduced online configurator to custom-build
the right desktop and laptop especially for personal
and small business users.
What makes the product different from other
Q: can customization (more expensive) serve non-premium customers?
What makes the product different from other
desktops/laptops:
1. It allows buyers to custom-build their desktops
and laptops and preview the result before
deciding to buy.
Other exp: ORACLE and SAP
Product Marketing
altering customers’
perception through
positioning & repositioning6
L-Men was successful in stirring the minds of
thousands (or millions) of Indonesian men (straight,
gay, whatever) through its campaign: “you are how
your body looks” and promising that “it works”.
What makes the product different from other
supplements:
1. It is marketed as a lifestyle product instead of
food supplement.
2. It links health (fitness) with style in a lifestly-
Q: does repositioning actually give more benefit to customers?
2. It links health (fitness) with style in a lifestly-
oriented market segment.
3. It bombarded the market with visuals that
attracted not just men to buy but also women
(or other men) to buy for their partners.
Other exp: Mountain Dew as the xtreme sport drink
Product Reputation
complex (and mostly long-
established) relationship
that enable firm and its
customers to ‘take risks’
7
Cosmos introduced rice-cooker, a big hit appliances
in many many Indonesian homes, with an
assumption that if their customers were buying their
popular rice box, they would also buy the rice-
cooker. The assumption was not all-wrong; the rice-
cooker survived to stand among other stronger
brands.
What makes the product different from other rice-
Q: is reputation only built over times? How startup build reps. quickly?
What makes the product different from other rice-
cooker:
1. Brand reputation that pomised (and have
proven) long-lasting home appliances: “ingat
beras, ingat Cosmos”.
Other exp: MTV and the world’s first reality show
Linkage Between Function
linking firm’s different
strengths and functions to
develop products (with
more benefit to customers)
8
In a pharmaceutical company where
units/departments are divided into areas of
specialties (genetics, biology, chemistry, etc) may
Q: what are the costs of being unable linking strength & functions?
specialties (genetics, biology, chemistry, etc) may
develop a ultidisciplinary team to explore and work
on new drug categories. Apart from being better
drugs, company’s ability to coordinate cross function
team is a competitive advantage.
Links with Other Firms
linking a firm’s products
with other firms’ products
to create more value to
each product.
9
When deciding to re-brand itself, KFC chose to When deciding to re-brand itself, KFC chose to
become “younger”. It chose to link with music, the
symbol of young(er) generation, without really
making music. Instead, it sells music CD in their meal
package. It has proven to increase their sales,
achieve the targeted image, and ... surprisingly
become popular CD outlets.
What makes the product different from other fast
food:
1. It worked with music producers to associate
Q: does co-branding equal to this strategy?
1. It worked with music producers to associate
both products (KFC’s fastfood and music CD) to
the young(er) generation.
2. It made CD sales easy(er), no need to go to
music stores.
Other exp: Barbie’s NASCAR series
Not the biggest, but Esia was known as provider of
Product Mix
a mix of products that are
technologically linked or
purchased simultaneously
by customers
10
Not the biggest, but Esia was known as provider of
cheap telecommunication. It could only survive –
and lead the market – by increasing traffic, especially
voice. Because technology was not Esia’s USP, it
mixed its product (mobile number and top-ups) with
cheap Chinese mobile devices and resulted in ‘free’
mobile phones for certain purchase of top-ups.
What makes the product different from other telco
products:
1. Customers felt that they received ‘free’ mobile 1. Customers felt that they received ‘free’ mobile
phones. In fact, Esia purchased cheap mobile
phones, reduce its profit margin on voice
communication and compensated by its traffic
boost.
Other exp: malls
Q: how to retain a product’s USP when sold/distributed as a mix?
Product Distribution
establishing different
distribution methods for
different targets
(customers, locations, etc.)
11
Oriflame is today one of the fastest growing beauty
companies selling directly their products to
consumers. Rather than investing in a chain of shops,
which would have taken time and been very costly,
the company decided to move its retail operations
into the homes of consumers.
What makes the product different from other
Q:?
What makes the product different from other
cosmetics:
1. It uses “gifts from friend” approach to direct-sale
their product way before word-of-mouth and
social media was even thought about.
Other exp: CocalCola and its local bottlers
Service and Support
providing certain level of
service and support
associated to products.12
Olympus was not the biggest camera maker in the
world. But in Indonesia, it led the increasing ILC and
mirrorrless camera market. It was also the first (if not
the only) to offer training for new Olympus ILC,
mirrorless and DSLR camera users, setting the
service bar higher even at the very beginning of user
experience.
What makes the product different from other
Q: how to adjust price to match desired post-sales service and support?
What makes the product different from other
camera:
1. It created educated customers by providing free
photography training which, for enthusiast
amateurs, was invaluable.
Other exp: GE and its independent service network
Attributes of Relationship with Linkages within or
How to Differentiate Product?
Focus on... only one?
Attributes of
products:
Relationship with
customers:
Linkages within or
between firms:
1. Features
2. Complexity
3. Timing
4. Location
5. Customization
6. Marketing
7. Reputation
8. Among functions within
a firm
9. With other firms
10. Product mix
11. Distribution channels
12. Service and support
The Value of Product Differentiation
Differentiation to Neutralize Threats
Five Forces Model
SubstitutesProduct Product
Differentiation
Q: during planning, how to forecast differentiation’s potential to reduce
threats?
Differentiation to Exploit Opportunities
Healtimie offers
healthier instant
noodle
First mover
Consolidation
Refinement XEROX copy paper
and the copying
machines/printers
market
noodle
Q: how product differentiation benefit a firm in declining industry?
Olympus PEN and
the ILC/Mirrorless
Sustained Competitive Advantage
Rarity -> creativity Imitability
Product Imitability
Low
-
cost Feature: Internet TV:
Sony -> LG (cheaper)
DIR
EC
T D
UP
LIC
AT
ION
SU
BS
TIT
UT
ES
ILC/Mirrorless
Ma
yb
e c
ost
lytiming reputation Service & support
mix
Link w/ other firms
customization
complexity
marketing
DIR
EC
T D
UP
LIC
AT
ION
SU
BS
TIT
UT
ES
Professional compact
1. Bigger sensors than compact
2. Bright fixed-lens
3. Manual controls
4. RAW shooting
5. Smaller size
Usu
all
y c
ost
lytiming
location
reputation
distribution
Service & support
Innovation Process: Case Study
3M is a global company that never
stops inventing and innovating.
Over the years, its innovations Over the years, its innovations
have improved daily life for
hundreds of millions of people all
over the world. 3M has made
driving at night easier, made
buildings safer, and made
consumer electronics lighter, less
energy-intensive and less harmful
to the environment. They even
helped put a man on the moon.
Every day at 3M, one
idea always leads to the
next, igniting
momentum to make
progress possible
around the world.
Innovation Process: Case Study
How 3M put innovation at the heart of its management and operation?management and operation?
Stretch Goals Empowerment Communication
Rewards and Recognition
Vision Foresight
Innovation Process: Case Study
Diverse Diverse Diverse
Robust
Network
Robust
Network
Robust
Network
Customer Customer Customer
Measured
Success
Measured
Success
Measured
Success
Celebrated
Experts
Celebrated
Experts
Celebrated
Experts
Innovation Centers
Bold
Talent
Bold
Talent
Bold
Talent
Diverse
Technology
Diverse
Technology
Diverse
Technology
Customer
Connection
Customer
Connection
Customer
Connection Innovation Centers
around the world
including Indonesia
Organization
Structure:
1. Cross divisional/functions
Structure:
1. Few layers
Pro
du
ct D
iffe
ren
tia
tio
n
Lea
de
rsh
ip
1. Cross divisional/functions
2. Matrix
3. Skunk works
1. Few layers
2. Simple reporting
3. Small corp. staff
4. Focus on narrow range of functions
Management Control:
1. Broad decision making
2. Managerial freedom
3. Policy of experimentation
Management Control:
1. Tight cost-control system
2. Quantitatve cost goals
3. Close supervision of labor, raw
materials, inventory etc
Compensation:
1. Reward for risk taking
2. Reward for creativity
3. Multidimensional performance
measurement
Pro
du
ct D
iffe
ren
tia
tio
n
Compensation:
1. Reward for cost reduction
2. Incentives for all employees involved
in cost reduction
Co
stLe
ad
ers
hip
materials, inventory etc
4. Cost leadership philosophy
Can the firm implement Cost Can the firm implement Cost
Leadership and Product
Differentiation simultaneously?
Yes? No?
Cost Leadership & Product Differentiation
YES, if: NO, if:• Market is substatially
large (sales volume)
• Firm is proven to
succesfully manage
internal contradiction
(and conflict)
• Product is low-priced
and cover large market
• Product is high-priced
and cover niche market
(and conflict)
QuestionQuestion
Presenters: Dwi Arti Anugrah, Endro Catur Nugroho, Marlisa Kurniati, Tri Kuncoro Wati
Faculty of Psychology, Universitas Indonesia, 2013
Information in this document is intended for academic purposes only.